STREET DOGS: Simple truth about 200-day moving average
From the Reformed Broker Joshua Brown: The first thing you should know is that whether or not the market is above or below the 200-day moving average doesn’t guarantee any particular course of action over the next one day, 10 days or two years. There is no signal there, for if there was, everyone would know exactly what to do upon each cross to the upside or downside. Second, you can see the market get above the 200-day moving average but do so while it is still in a downtrend. Conversely, you can see it break below the 200-day while it’s still in an upward trend. There is no worthwhile system that will produce satisfactory results from buying above the 200-day and then selling on a cross below, but there is one simple truth about market behaviour above and below this imaginary line: Bad things tend to happen more often when the stock market is below it. This seems obvious, and it is. When stocks are selling below the levels at which they’ve spent most of a year, people are more ner...
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