Trading the 200 Day Moving Average: Does it Work? // ema sma strategy tutorial // with David Moadel
welcome to looking at the markets with David Modell the 200-day moving average
is it meaningful is it important is it tradable and is it trouble when the
market breaks and closes below the 200-day moving average and everything
I'm saying in this video I'll be using the SPI which represents the S&P 500
I'll be using that as the example but I believe that what I'm going to say today
can be applied to individual stocks or other indexes or commodities currencies
whatever I believe it applies pretty universally at least in my opinion all
right so let's take a look at and we're going to start with the simple moving
average the 200-day simple moving average but we'll also look at the
exponential moving average as well all right so this is 2018 and we can see
that yes it went below you know this is the daily candlestick chart of SB Y
which represents the S&P 500 yes it went below it didn't close below though so
that might not count back in early April it broke below the 200-day moving
average but came right back up but it didn't close below it so that might not
count here it touched it but it didn't really close below it so that probably
won't count for most people this should count though recently it closed below
the 200-day moving average but then went right back up I mean we don't know yet
exactly how this is going to play out but so far it's gone and stayed above
right back above the 200-day moving average but that's just one example and
again we don't know how this is going to play out which direction it's going to
go so let's we're gonna have to go back further to really see but first once
again I said that was the 200-day simple moving average let's change it to
exponential again we're using stockcharts.com want to give them credit
is the exponential moving average really that much different
well interestingly wait a minute we got to put it - whoops got to change it to
200 yeah there we go all right so if we put on the
exponential is it really that different I would say no all right in my
experience long-term the EMA and the SMA for the 200 are really not that
different we could see here that it's not you know back in looks like February
it touched it April it just kind of kind of touched it
but you know that might not count for a lot of people just touched it here in
May close below it in October but then came right back above so pretty much the
same story whether you use the simple or exponential 200-day moving average in
2017 it did not close below the 200-day moving average at all not even once
believe it or not so we can't look at that we have to go back further if we
want more examples we have to go all the way back to mid 2016 believe it or not
all right so let's take a look at what happened there
back in looks like late June we're looking at these simple 200-day simple
moving average and it broke below and came right back up way up and then went
sideways and went out more all right so doesn't look like it was any trouble
here all right let's go back even further for more examples oh wait sorry
got a look at the we look at the simple want to look at the exponential for the
exponential people make sure we put it on 200 there we go
let's see how that looks pretty much the same story woops stockcharts.com is
flipping out on me come back there we go okay yeah it broke below close below
about the same time came right back up looks like it broke below a little bit
here on the exponential moving average for the 200 day and barely broke below
but it looks like it did but then shot right back up so false signals all right
let's go back even further all right this is 2000
14 and 15 and the first half of 2016 we have a lot more examples here alright so
in 2014 looks like we had a correction here it
broke closed below the 200-day moving average came right back up didn't stay
very long okay and then it alright so now we do have
the to 10% Corrections both of them double bottoms as they say and that's in
late 2015 and early 2016 okay so yeah it broke below and then it
kept going and it stayed there okay so it stayed there for a few months but
then came right back up so this was not a market crash so the people who said
okay it broke below the 200 it's trouble well it didn't turn out to be a market
crash it turned out to be just a run-of-the-mill ten percent correction
which is normal these things happen all right
and then here broke below came right back up no market crash here broke below
came right back up broke below came right back up three in a row here a lot
of people don't remember those maybe but there they are three false signals in a
row broke below it another 10 percent correction okay another double bottom
came right back up and we know what happened after that
okay so kept going up alright so that's quite a few examples
here so for the people who say oh if it let's also look at the exponential but I
suspect it's gonna be the same story there we go
200-day update what do you want to bet same story yep broke below came right
back up and pretty much the same story here a lot of false signals all right so
does the S&P 500 closing below the 200-day moving average is that trouble
is that a market crash well we've got plenty of examples of it not being a
market crash okay back in 2008 it was but there are a lot more examples of it
not being the beginning of a real crash
alright so it could be the beginning of a correction but if you went short every
single time it broke below you probably wouldn't done too well overall because
we have enough false signals here and or even if okay so if you've shorted here
you would have done okay temporarily but that's hindsight
alright you would have had to know exactly when to get out all these times
it's easy to say oh I would have known back then but come on that's hindsight
which is always 20/20 now what about the strategy of some people say well okay
it's not necessarily trouble if it closes below the 200-day moving average
but maybe I can buy when it breaks back above and then sell when it breaks back
below and then buy when it breaks above and then sell when it breaks below and
then buy above sell below well okay you want to run up some Commission costs
with all the chop around here alright but let's see how that would have worked
out well let's use this one as an example you would have okay you would
have let's say bought here and enjoyed a nice run up and then sold here well
that's a pretty good run up here right and then you would have bought here sold
here bought here sold here body or sold here just kind of went sideways you
would have lost probably some money on commissions unless you used a you know
Commission free broker and then you would have sold here and then bought
back lower here okay that's not good all right
and so we could look at the examples you would and in this one you would have a
you know you would have sold here bought here I'm starting to theer bought here
I'm starting to think that maybe you would have done better comparatively
speaking just buying and holding well actually I found an article and I'll put
I'll put the link in the description below this video somebody actually back
tested it this year all right this was a few months ago but so they you know the
people they didn't count the most recent one but still they have a you know the
past thirty years of data here and they back tested it so if you just bought and
hold the sp500 over the past thirty years you would have made about eight
percent per year that sounds about right I always say it's yeah between eight and
ten percent per year typically if you and Riaan if you reinvest all the
dividends that kind of thing so but let's say eight percent okay now what if
you used that strategy of if you bought when the S&P 500 you know broke above
the 200-day moving average and then you switch to cash or you've sold whenever
it broke below the 200-day moving average and then bought back when it
went above and so on you would have earned an average of around six and a
half percent over the past thirty years so just doing nothing just buying and
holding would have gotten you eight percent and SP why by the way has a
dividend so I don't know if that includes reinvesting the dividends I
imagine if you did you would have made even more than 8 percent possibly
alright so I'll put a link to this article in the description below the
video it's from bull markets dot Co
pretty cool all right so is it tradable and the title of this article says at
all the 200-day moving average isn't as useful as you think so is it tradable
compared to buy and hold not really I don't think so and this article writer
Troy doesn't seem to think so either is it real trouble well depends what you
mean by trouble it could be a correction but 10% Corrections are normal and a lot
of the times it was just noise and it just went right back up alright you know
here and here here here here here and here so far I don't know how this is
gonna play out we'll find out and intraday it broke below a few times and
it touched here and that meant nothing so I don't find the 200-day moving
average particularly useful I hate to say it I don't know maybe you have a
strategy that is useful put it in the comments below if you like using the
200-day moving average in a different way let me know and you know maybe you
could use it with another moving average like with you know a lot of people like
to use the death cross which is when the 50-day moving average crosses below the
200-day moving average and then the Golden Cross when it crosses back above
so maybe if you combine it with other other things other indicators it can be
useful but just by itself and using the candles breaking above or below
I don't know I don't know how meaningful it is I don't particularly use it by
itself as as very meaningful all right so I hope you enjoyed this video hey
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offer help to people who want help with indicators moving averages and putting
together a trading or investing plan because you gotta have a plan otherwise
you're not gonna probably not going to do too well alright
and so my email address is David Modell at gmail.com thank you so much I
appreciate it and I'll talk to you again soon