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July 21, 2012 / redman59

One For the Friends..Simple SPX Timing Strategy

When it comes to down markets and volatility like we are seeing lately I get questions from friends at work on what they should do. I am sure if your friends know what you do you get many questions as well and at times it can be quite daunting as it is not your money but they are asking questions that concerns their money. This is one system that I tell them to trade that utilizes the monthly chart and the 10 period exponential moving average. It is really no secret but I like to lay out some raw numbers concerning it using charts and the eye, no backtesting software here. I like this system for a couple reasons:

1) its not trade active but on a end of month basis
2) any free charting software can follow it

So if you have friends point them to this easy system. For example I have several friends that utilize the Thrift Savings Plan or TSP (the government retirement fund). In this they can only make two asset allocations per month switching from one fund to the other. Some for those that want to allocate to the C Fund (benchmark to the SP500) I reference them to this system. It trades on an end of month basis so it only incorporates one trade. This is just an example to how one can inform friends but the main goal of this strategy is to REDUCE NOISE. I have been paying attention to the markets since 2006 and trading since 2007 so while I don’t have the experience of 1987 or 2001, I did go through the 2008 into 2009 fuckery, an experience I cherish.

This is easy to follow and reduces that mental strain that many can experience. I remember many friends telling me they were pulling out of the market in early 2009 and sat out most of 2009-2010. I can’t blame them either because who knew what the hell would happen. But some simple free software and 1 line could point them in the right direction.

Below are the results from excel that are taken from the charts. It encompasses the date you would go long based upon a close above the 10 period exponential moving average to the date you would exit based upon a close below the 10 period exponential moving average. I chose the close because going into the month it seemed likely that you would know if it would close above/below the 10 period exponential moving average. Also if you did receive a signal, one could place a limit order as on all times I witnessed the next day provided a price above or below the signal price.

From the backtest of prices one could see that the 10 period exponential moving average system does outperform in all market conditions. What I really like to focus on is that last years as they represent more volatility and confusion among investors/traders. Many focus on monetary capital but one has to remember the mental capital as well. This is why systems like this pay off in my opinion. I remember how many friends were asking me what to do and why I would I buy here. My simple answer is history and data has shown me this works and this is what I will follow. Yes I will be wrong but I do not know the future and all I can do is follow what has worked in the past.

Below is charts posted by the decade with buy and sell signals (with the last signal) starting from the 70’s (the longest Worden would go back). The arrows would not directly line up to the bar so go back 1/2 or to the previous bar. At the bottom is the overall picture.

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