Buy Signals Sell Signals: Strategic Stock Market Entries and Exits pdfdrive com

Simple signals for beating buy and hold investing:

The most popular and most promoted system for stock market participation is

buy and hold investing. Investors buy mutual funds by dollar cost averaging in to
them and holding them for decades. Their only sell signals are to rebalance their
portfolio either quarterly or annually, and to slowly move into bonds as their
retirement approaches. Meanwhile, the investors are taking on all the risk while
the mutual fund managers and mutual fund companies are getting paid to
underperform their benchmark indexes.
The problem with buy and hold is the huge drawdowns during bear markets and
financial crises that can stay underwater for decades. While buy and hold is great
in theory, most investors can’t hold through big drops in their portfolio value and
may end up having to sell at the wrong time. They don’t know when to get back
in and eventually get trapped on the sidelines.
Here are four very simple trading strategies with buy and sell signals that
can replace buy and hold investing:
- From January 3, 2000 to October 20, 2015 $SPY buy and hold returned 98.9%
with a 55.2% drawdown. These are long only systems for beating buy and hold
investing using the SPY ETF (S&P 500 index tracker) as our stock market proxy
and simple moving averages as signals.
- If we traded SPY using the 200-day SMA as an end of day buy/sell indicator
from January 3, 2000 to October 20, 2015, the 200-day SMA returns were 96.1%

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with a 27.3% drawdown. We cut the drawdown in half from the buy and hold
system. This reduces the pain of drawdown dramatically by simply having a stop
loss sell signal for our equity positions.
- If we traded SPY using the 250-day SMA as an end of day buy/sell indicator
from January 3, 2000 to October 20, 2015, the 250-day SMA returns were
120.5% with a 23.1% drawdown. We cut the drawdown in half and actually
increased the return versus a buy and hold system that used SPY. We moved or
stop loss further out so we were not stopped out prematurely on noise around the
200-day, and picked up more on the bounce back over the 200-day. We stayed
out of the worst bear markets and were quick to get back into rallies early when
price broke back over the 250-day.
- If we traded SPY using the 20/200-day crossover as an end of day buy/sell
indicator from January 3, 2000 to October 20, 2015, the 20-day/ 200-day SMA
crossover returns were 173.6% with a 17.3% drawdown. We cut the drawdown
in half and almost doubled the return of buy and hold investing in SPY. This
system gives us a buy signal when the 20-day crosses over the 200-day and a sell
signal when the 20-day crosses back under the 200-day. The 20-day acts as a
filter on the 200-day, keeping us in our positions longer before exiting and
waiting for more confirmation with the 20-day before we get back in. It
dramatically reduces the trading activity we would experience with the 200-day
alone by filtering out much of the noise.
- If we traded SPY using the 50/200-day crossover as an end of day buy/sell
indicator from January 3, 2000 to October 20, 2015, the 50-day/ 200-day SMA
crossover returns were 204.2% with a 17.3% drawdown. We cut the drawdown
by over one third and more than doubled our returns versus just buying and
holding SPY. This system gives us a buy signal when the 50-day crosses over the
200-day, and a sell signal when the 50-day crosses back under the 200-day. The
50-day acts as a filter on the 200-day keeping us in our positions longer before
exiting and waiting for more confirmation with the 50-day before we get back in
after being stopped out. It reduces trade signals even more than the trading
activity we would experience with the 20/200-day cross, by filtering out most of
the noise in the past 15 years and catching almost all significant moves up in
price. Trading the 50-day crossing over the 200-day is called the golden cross
and is very bullish, while the 50-day crossing under the 200-day is said to be
bearish. This backtest shows this to be true in the SPY.

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These back tests were done at www.ETFreplay.com.

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The Legendary Turtle Traders System
Have you ever heard of the legendary Turtle traders? Millionaire trader Richard
Dennis set out to find out if traders were just born to trade, or if they could be
trained to be successful in the markets.
The answer? IF THEY COULD FOLLOW RULES THEY COULD BE
SUCCESSFUL.
“I always say that you could publish my trading rules in the newspaper and no
one would follow them. The key is consistency and discipline. Almost anybody
can make up a list of rules that are 80% as good as what we taught our people.
What they couldn’t do is give them the confidence to stick to those rules even
when things are going bad.” –Richard Dennis: Founder of the ‘Turtle Traders’.
The Turtle system proved that traders could be trained. The traders that followed
the rules went on to be millionaires and to manage money professionally. Their
rules were made public many years ago, and here is a brief explanation of their
buy signals and sell signals: