Stocks & Commodities V. 25:5 (28-33): Moving Averages: Long On Talk, Short On Action by Anthony Trongone, Ph.D.
Making a minor adjustment to a popular indicator can make all the difference in profitability.
Although the technical literature is replete with articles discussing the efficacy of moving averages to forecast future stock prices, after analyzing the three-, eight-, 13-, 21-, 34-, 50-, 100-, and 200-day simple moving averages, the results were disappointing. In looking back at the performance of the regular trading session (November 1, 2002–December 31, 2006), the single positive result came from the 34-day moving average,
which had an insignificant gain of 68.5 cents (Figure 1).
So why should we keep subscribing to trading moving averages? Because by making two simple adjustments, our average profit improves to $124 for
each 1,000-share long position along with an impressive 71% winning percentage.
With an advance of $18.60 we would certainly expect moving averages to produce stunning results. This gain, however, is somewhat deceptive, because the 1,049 trading days gave us a regular session loss of $1.64. Therefore, when restricting our trading to the 09:30–16:00 ET time frame, we would anticipate a small setback.