Trend
Golden cross 50/200
Two averages instead of one: a fast one and a slow one. A cross from below is called the “golden cross”, a cross from above the “death cross”. There are fewer trades than with a single average, but the reaction is slower too.
Rules
- Fast average: 50 candles; slow average: 200.
- Fast above slow: in the market.
- Fast below slow: out of the market.
Code for the lab
fast = input(50, 10, 100, 5) slow = input(200, 100, 300, 10) f = sma(close, fast) s = sma(close, slow) plot f, s buy when f > s sell when f < s
You can change the code right in the lab: the numbers in input(…) become sliders.
Results on eight markets
| Market | CAGR | Drawdown | Trades | Buy and hold: CAGR | Buy and hold: drawdown |
|---|---|---|---|---|---|
| MOEX Russia Index | — | — | — | — | — |
| Sberbank | — | — | — | — | — |
| Gazprom | — | — | — | — | — |
| Gold, $ per ounce | — | — | — | — | — |
| Brent crude, $ per barrel | — | — | — | — | — |
| Bitcoin | — | — | — | — | — |
| Ether | — | — | — | — | — |
| VN-Index | — | — | — | — | — |
| Market | CAGR | Drawdown | Trades | Buy and hold: CAGR | Buy and hold: drawdown |
|---|---|---|---|---|---|
| MOEX Russia Index | — | — | — | — | — |
| Sberbank | — | — | — | — | — |
| Gazprom | — | — | — | — | — |
| Gold, $ per ounce | — | — | — | — | — |
| Brent crude, $ per barrel | — | — | — | — | — |
| Bitcoin | — | — | — | — | — |
| Ether | — | — | — | — | — |
| VN-Index | — | — | — | — | — |
The numbers are calculated in your browser from fresh source candles.
Default parameters, daily candles, a fee and slippage of 0.05% each per trade, no return on cash out of the market, prices without dividends. The test starts once all of the rule’s indicators are calculated.
What research says
There are no academic tests of the 50/200 pair as such: it is market folklore. Brock, Lakonishok and LeBaron (1992) studied similar rules (averages of 1–5 and 50–200 days) on the Dow Jones index over 1897–1986, and back then the signals gave an edge.
Zakamulin (2014) showed that the gains of moving-average rules come almost entirely from a few deep bear markets, and Sullivan, Timmermann and White (1999) showed that once you adjust for the search over many rules, the edge on new data disappears.
Original source: Brock, Lakonishok, LeBaron. Simple Technical Trading Rules and the Stochastic Properties of Stock Returns. Journal of Finance, 1992
When the rule breaks
- A sideways market: the averages cross often.
- A fast V-shaped turn: the cross comes when the rise is already over.
- One-off events: the exit signal comes weeks after the fall.