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Chapter 3. Moving Averages and Rates of ... > Moving Averages: Myths and Misconcep...

Moving Averages: Myths and Misconceptions

It is frequently said that the stock market is in a bullish position because prices lie above their 30-week moving averages or that it is bearish because prices lie below their 30-week moving averages. Sometimes 10-week or 20-week moving averages are referenced instead. There are some elements of truth to these generalizations, but strategies of buying and selling stocks based on crossings of moving averages tend to add only moderately, if at all, to buy-and-hold performance.

For example, consider two possible strategies. The first strategy involves buying the Dow Industrials when its daily close exceeds its 200-day moving average, and selling at the close of days when its close declines to below the 200-day moving average. The second strategy employs the same rules but is applied to crossings of the 100-day moving average.


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