The one thing however that these guys insist on is that you always trade stocks above the 200 MA. I say that is an interesting idea but not necessarily appropriate to the current market - in other words - bullsnot.
In a recent article (not the one cited above) they describe a 5 day down system where you bought the sixth day after 5 lower lows in a row. We looked at similar methods many years ago and in fact wrote about a couple here in this BLog last year - they don't test very high so I've sort of rejected the whole idea. But TradingMarkets goes on to say (as they always do) to only use this method when the close is above the 200 MA. I say only use it when the close is below the 200 MA. Who's right - who's wrong - two men enter Thunderdome and only one leaves ....
Unlike TradingMarkets who uses a hundred years of data to prove their contention I use only 80 days. The fact that my 80 days just happened and their hundred years happened - oh a hundred years ago must have some bearing on the results of my tests because -
Greater Than MA 200 = 53% win rating, .89 reward/risk, -9.73% ROI
Less than MA 200 = 56% win rating, 1.96 reward/risk, 85.92% ROI
I win. That's significant and case closed. The reason why stocks below the MA 200 do so well is because all stocks that are trading above their MA 200 now once traded below their MA 200. This absolutely incontrovertible fact leads me to think that somebody, somebody really, really, really smart, must have bought them below their MA 200 or they wouldn't be trading above the MA 200 today.
So it's up to you - the TradingMarkets way (above MA 200) or the really, really, really smart way (below MA 200) - your choice.
