The chart above is a monthly chart using a price line as opposed to a candlestick chart to simplify the view. The only indicator used the 12 period Simple Moving Average (SMA).
This chart starts 1/1/95. Using the 12 period SMA (Green line) as an indicator to be long in a trade or in cash over a period of 28 years there would have been approximately 22 trades from 1995 to today (3/17/23).
The concept is simple if the monthly candle closes above the monthly SMA, stay long if closes below go to cash. Once it closes back above on the monthly candle, time to go reenter the market.
I back tested this years ago. It won’t make much more in than if you just stayed in the whole time but this strategy allows you to miss all the big down moves. It eliminates significant drawdowns.
The 12 SMA monthly strategy can being tweaked in many ways. You can:
1) Long and Short strategy
2) Add monthly investments or hold until the next entry signal
3) Turn into a pair’s strategy (short SPY/long TLT)
4) ?
I have only back tested a simple strategy but for simplicity and less stress using a 12 monthly SMA is a not a bad way to go.
Secondly, the 12-month SMA can show when the market is overextended. The move from 3/30 – 12/21 was an explosive move up, a 75% slope. It retraced by 50%. The most recent move from 10/23 to now is currently an 80% slope. Most likely the S&P will flatten out to a sideways move or it will retrace part of it’s move. It can continue on the same slope but at some point, it will correct.
This chart starts 1/1/95. Using the 12 period SMA (Green line) as an indicator to be long in a trade or in cash over a period of 28 years there would have been approximately 22 trades from 1995 to today (3/17/23).
The concept is simple if the monthly candle closes above the monthly SMA, stay long if closes below go to cash. Once it closes back above on the monthly candle, time to go reenter the market.
I back tested this years ago. It won’t make much more in than if you just stayed in the whole time but this strategy allows you to miss all the big down moves. It eliminates significant drawdowns.
The 12 SMA monthly strategy can being tweaked in many ways. You can:
1) Long and Short strategy
2) Add monthly investments or hold until the next entry signal
3) Turn into a pair’s strategy (short SPY/long TLT)
4) ?
I have only back tested a simple strategy but for simplicity and less stress using a 12 monthly SMA is a not a bad way to go.
Secondly, the 12-month SMA can show when the market is overextended. The move from 3/30 – 12/21 was an explosive move up, a 75% slope. It retraced by 50%. The most recent move from 10/23 to now is currently an 80% slope. Most likely the S&P will flatten out to a sideways move or it will retrace part of it’s move. It can continue on the same slope but at some point, it will correct.