Let’s build a system. Where we have well defined rules for entry, exit and position size and we check the performance of that strategy historically.
Many of you are familiar with technology. But I’m going to try and make it really simple. Let’s take a moving average strategy:
- Buy when the stock’s 20 Simple Moving Average (SMA) crosses over the 50 SMA.
- Sell (and go short) when the 20 SMA crosses below the 50 SMA.
- Use only 100 shares at one time.
Simple enough, we should think. But how has such a strategy performed in the past? Here’s the “eyeball” approach:
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