Today, CXO Advisory Group published a study that examines the effectiveness of 50-day and 200-day Simple Moving Averages (SMA) to identify trends.
The study was prompted by a client request to examine the SMA signal for Gold; CXO graciously included the S&P 500 data for comparative purposes in their study. That greatly broadens its appeal. The study comprehensively explores four timeframes.
Note that the work focuses on SMA methods which equally weights all data points. An alternative approach called Exponential Moving Averages (EMA) weights the most recent data most heavily, and mathematically uses a decay function such that more distant data has a decreasing impact on the final average.
Here is CXO’s bottom-line conclusion: “In summary, evidence from simple tests on available data show that 200-day and 50-day/200-day SMA rules used to identify U.S. stock market return and volatility regimes do not work for the spot gold market.”
Here is the Link to the article:http://www.cxoadvisory.com/15805/technical-trading/use-standard-smas-to-identify-gold-market-regimes/#more-15805
Enjoy. You can profit from reviewing this brief study.
I encourage you to visit the CXO website. The article clearly demonstrates the effectiveness of the 200-day SMA as a signaling agent for the S&P 500 Index, but it fails to be a reliable method for Gold returns forecasting.
All these procedures have their merits, but also have shortcomings. As always, users must be alert to these limitations. Simple Moving Averages can help as a guide in some of your investment decision making.