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I use moving averages to buy stocks that are in an uptrend and sell stocks that are in a downtrend.
For example, one method is to use the 200 day moving average to trade the S& P 500 ETF (SPY). When SPY is above the 200 SMA we buy the ETF and when SPY is below the 200 SMA we sell the ETF.
The backtest results are shown below from doing a moving average backtest with pyinvesting.com. While the strategy has a lower return of 218.7% vs the SPY which had a return of 245.3% from March 2006 to October 2020, we can see that the moving average strategy had much lower risk. The volatility of the strategy was 11.3% vs the SPY which had a volatility of 19.9%. The strategy also lost 17.4% during the 2008 crisis while SPY was down 55.2%.
Technical analysis is a great way for people to manage their risk and plan exactly when to enter and exit a trade.
For example, one method is to use the 200 day moving average to trade the S& P 500 ETF (SPY). When SPY is above the 200 SMA we buy the ETF and when SPY is below the 200 SMA we sell the ETF.
The backtest results are shown below from doing a moving average backtest with pyinvesting.com. While the strategy has a lower return of 218.7% vs the SPY which had a return of 245.3% from March 2006 to October 2020, we can see that the moving average strategy had much lower risk. The volatility of the strategy was 11.3% vs the SPY which had a volatility of 19.9%. The strategy also lost 17.4% during the 2008 crisis while SPY was down 55.2%.
Technical analysis is a great way for people to manage their risk and plan exactly when to enter and exit a trade.