Posted by frtaylor on 23rd of Dec 2015 at 09:14 pm
Question for Matt, Steve or other technically oriented folks: In
the last twenty years when we have gotten a death cross that was
followed in short order by a golden cross, we've always seen a
resumption of the up trend, and a fairly strong move at that. (I
got this information from Rich Severson, OptionsMD.com, not my own
discovery.) The 200 and 50 dma's are back together again right now.
If the golden cross holds over the next week or two, how would this
fact alter your view of the market going forward?
frtaylor- well you
know my stance on the long term MA and death crosses as I did a
bunch of work on that years ago. use the side search box, key
words search, moving average whipsaw confirmation. It's a
concept I came up with years ago where whenever MA's cross one
another you need a confirmation candle with price taking out the
candle's high/low where the MA's crossed. This confirmation
filters out a huge number of MA crosses that are whipsaws and
simply flip back. If you test MA crossovers you get winning
percentages typically of only 30% - 40%, which tells you why follow
simple MA crosses at all - the lag fact is the problem here.
However when applying my whipsaw confirmation method it would
increase the winning percentages typically to 70% - 85%, much
better. But still, MA crosses are to rudimentary.
That said, what I discussed above supports what you read, simple
raw MA's crossovers are only about 30% - 40% right from my tests,
therefore by simple math most of them give false signals and thus
most of the time price will simply continue in the trend it was.
anyway on the weekend newsletter I discussed my thoughts on the
market going forward, nothing has changed from my weekend
discussion, I suggest you review it
Posted by frtaylor on 23rd of Dec 2015 at 10:54 pm
Thanks, I did listen to the weekend newsletter. And I definitely
have your confirmation approach for ma crossovers etched in my
mind. I was just curious if the statistical fact of a substantial
move back in the direction of the trend carried any weight for you.
I got the impression from your market analysis that no such move
would occur - i.e. we may get a marginally new higher high but
nothing like a 400-500 point move to the upside from here, which on
a percentage basis is similar to past death/golden cross whipsaws.
Just trying to think about all the possibilities. It's so easy to
become bearish, but we're in the bullish season and wouldn't that
just burn all the bears out there if SPX went to 2,500 by June.
the point I was trying to make, kind of long winded, was that if
you back test pretty much any two moving averages as a system i.e.
go long when the faster MA crosses above the slow MA and reverse
short when the fast MA crosses below the short MA, unless you curve
fit them to a given time frame, they will always produce less than
50% winning trades. Thus logic dictates that yes when MA's
cross one another more often than not it's a whipsaw and price will
simply resume back in the direction it was already headed.
For example if I test a 13 EMA crossing over a 34 EMA, over
one time frame I get only a 33% winning strategy, this means that
odds favor you to actually assume the trend will continue in the
same direction in most cases when the two MA's cross.
Best to use much more powerful but simple technical analysis
techniques such as patterns, trendlines, symmetry moves, even some
rudimentary wave count but only if it's very obvious, and for
moving averages they have their place, however best to use them for
noting bullish and bearish configuration and price distance from
price and each other etc
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Question for Matt, Steve or
Posted by frtaylor on 23rd of Dec 2015 at 09:14 pm
Question for Matt, Steve or other technically oriented folks: In the last twenty years when we have gotten a death cross that was followed in short order by a golden cross, we've always seen a resumption of the up trend, and a fairly strong move at that. (I got this information from Rich Severson, OptionsMD.com, not my own discovery.) The 200 and 50 dma's are back together again right now. If the golden cross holds over the next week or two, how would this fact alter your view of the market going forward?
frtaylor- well you know my stance
Posted by matt on 23rd of Dec 2015 at 10:41 pm
frtaylor- well you know my stance on the long term MA and death crosses as I did a bunch of work on that years ago. use the side search box, key words search, moving average whipsaw confirmation. It's a concept I came up with years ago where whenever MA's cross one another you need a confirmation candle with price taking out the candle's high/low where the MA's crossed. This confirmation filters out a huge number of MA crosses that are whipsaws and simply flip back. If you test MA crossovers you get winning percentages typically of only 30% - 40%, which tells you why follow simple MA crosses at all - the lag fact is the problem here. However when applying my whipsaw confirmation method it would increase the winning percentages typically to 70% - 85%, much better. But still, MA crosses are to rudimentary.
That said, what I discussed above supports what you read, simple raw MA's crossovers are only about 30% - 40% right from my tests, therefore by simple math most of them give false signals and thus most of the time price will simply continue in the trend it was.
anyway on the weekend newsletter I discussed my thoughts on the market going forward, nothing has changed from my weekend discussion, I suggest you review it
Thanks, I did listen to
Posted by frtaylor on 23rd of Dec 2015 at 10:54 pm
Thanks, I did listen to the weekend newsletter. And I definitely have your confirmation approach for ma crossovers etched in my mind. I was just curious if the statistical fact of a substantial move back in the direction of the trend carried any weight for you. I got the impression from your market analysis that no such move would occur - i.e. we may get a marginally new higher high but nothing like a 400-500 point move to the upside from here, which on a percentage basis is similar to past death/golden cross whipsaws. Just trying to think about all the possibilities. It's so easy to become bearish, but we're in the bullish season and wouldn't that just burn all the bears out there if SPX went to 2,500 by June.
And now, back to Christmas!
Posted by frtaylor on 23rd of Dec 2015 at 10:58 pm
And now, back to Christmas!
Here's a couple posts I
Posted by matt on 23rd of Dec 2015 at 10:43 pm
Here's a couple posts I made years ago where I go into this in much more detail
http://breakpointtrades.com/blog/post/222952/#222959
Thanks for the link.
Posted by frtaylor on 23rd of Dec 2015 at 10:54 pm
Thanks for the link.
the point I was trying
Posted by matt on 24th of Dec 2015 at 12:05 pm
the point I was trying to make, kind of long winded, was that if you back test pretty much any two moving averages as a system i.e. go long when the faster MA crosses above the slow MA and reverse short when the fast MA crosses below the short MA, unless you curve fit them to a given time frame, they will always produce less than 50% winning trades. Thus logic dictates that yes when MA's cross one another more often than not it's a whipsaw and price will simply resume back in the direction it was already headed. For example if I test a 13 EMA crossing over a 34 EMA, over one time frame I get only a 33% winning strategy, this means that odds favor you to actually assume the trend will continue in the same direction in most cases when the two MA's cross.
Best to use much more powerful but simple technical analysis techniques such as patterns, trendlines, symmetry moves, even some rudimentary wave count but only if it's very obvious, and for moving averages they have their place, however best to use them for noting bullish and bearish configuration and price distance from price and each other etc