![]() The SMA is one of the primary indicators in technical analysis and is usually the easiest moving average to construct, which is why it is referred to as the “simple” moving average. The average is called “moving” because it is calculated continuously for any new price data recorded in each new trading session and plotted on the chart bar by bar, forming a line that moves along the chart as the average value changes. What is a simple moving average (SMA)?Ī simple moving average (SMA) is a simple average of the price of an asset over a specified period. As an example, we recommend our pullback trading strategy. Another useful tool can be to use a moving average as a trend filter. This is, of course, not he only way to test moving averages. ![]() The four tables are all moving average crossover systems. This has returned an average of 10.93% per trade (dividend reinvested is not included thus understating the result. The best result is if you buy when the close crosses above the 200-day moving average and hold for 200 days – slightly less than a year. The tailwind from inflation and productivity gains make sure of that. Tables 3 and 4 confirm what we found out in tables 1 and 2: longer you stay invested in stocks, the better the returns. The last two backtests, 3 and 4, returned the following results: We would say this is pretty good because the max drawdown is just half compared to buy and hold (28 vs 56%). The longer the average is, the better! The 200-day moving average returns 7.89%. This means that trend-following strategies work best in the long term. However, as the moving average gets longer, it turns upside down: then it’s getting more and more profitable to buy when the close crosses above the simple moving average. The 5-day moving average returns a CAGR of 8.34% (which is pretty good). This we can see in table one where it’s clearly much more profitable to buy when the close crosses below a short-term moving average than compared when it crosses above. What conclusions can we draw from these two tables? The first thing that is quite obvious is that the stock market shows tendencies toward mean-reversion in the short run. The results of the backtests can be summarized in the following four tables – one for each system: We use average gain per trade in percent to evaluate performance, not CAGR. Strategy 4: When the close of SPY crosses ABOVE the N-day moving average, we sell after N-days.Strategy 3: When the close of SPY crosses BELOW the N-day moving average, we sell after N-days.We sell when SPY’s closes BELOW the same average. Strategy 2: Opposite, when the close of SPY crosses ABOVE the N-day moving average, we buy SPY at the close.We sell when SPY’s closes ABOVE the same average. ![]() Strategy 1: When the close of SPY crosses BELOW the N-day moving average, we buy SPY at the close.This website is all about quantified strategies, and we go straight to our backtests: what is the best use of a simple moving average? All in all, we test four different moving average crossover systems to find the best simple moving average strategy. Simple moving average strategy backtest and best settings Relevant articles about moving averages strategies and backtests.How can you use a simple moving average?.How do you calculate a simple moving average?.Simple moving average strategy backtest and best settings.
0 Comments
Leave a Reply. |