Friday, July 17, 2009

GT Blog July 17, 2009

Technical Analysis – myths and urban legends continued…

A few days ago I looked at one of the most over-used and misinterpreted patterns - the scary Head & Shoulders Reversal pattern

Another over-used technical tool is the 50 day and 200 day crossover – the idea here is to buy if the 50 crosses above the 200 (the golden cross) and to sell if the 50 crosses below the 200 (the death cross) – Well I did a scan of 100 of the top TSX big caps and then did a scan of all of the major stock indices to see if the buy & sell signals worked

The scan covered long and short trades – and found the batting average overall was less than 50 % meaning that profitable trades will on average occur four times out of ten trades – but in a trending markets the profitable longs or shorts more than covered the losses on the whipsaw losing trades.

As you can see the 10-year batting average for the TSX Composite was 40% which means an investor cannot “blow out” an entire portfolio on a sell signal and then re-acquire on a buy signal – a more practical approach would be to use one trade per signal and put on or take off an insurance product such as and inverse ETF such as the TSX listed HIX or the HXD – for more info visit

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