It is fairly simple to test this thesis that “moving averages no longer work since 1990″. Below is a chart of the S&P500 total return vs a timing system that uses the simple 50/200 day SMA crossover mentioned in the article. The portfolio moves into a Vanguard Bond mutual fund when not on a buy signal. Transaction costs and taxes are ignored.

As you can see, the conclusions the professor has made are somewhat curious.  It looks like timing improves every metric from CAGR [compound annual growth rate] to vol and maximum drawdown reduction.  It also looks like the timing model did an impressive job of sidestepping two devastating bear markets and the psychological damage that causes.
– Mebane Faber

Blake LeBaron, a finance professor at Brandeis University is the one who apparently came to the conclusion that moving averages haven’t worked since 1990. However, as Mark Twain supposedly said, “It ain’t what you don’t know that gets you in trouble. It’s what you know for sure that just ain’t so.”

I doubt that Mark Twain actually said all the things he’s credited with saying, but it’s one of my favorite quotes anyway. It’s amazing how much I read and hear about the markets that’s very simple to verify if people would just go to the trouble to do it.

RSI Reversal

The portfolio is about 30% invested. But, as you know, this strategy can go from 0% invested to 100% and back to 0% in a matter of days.

I may — emphasis on may – be through tweaking this strategy for awhile. I kind of like what it’s doing.
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5 Uncommon Rules of Wealthy Traders

1. They plan every single trade. EVERY SINGLE ONE.
2. They stopped trying to pick tops and bottoms years ago.
3. They are patient with winners – and ridiculously impatient with losers.
4. They trade one market. ONE.
5. Their benchmark for success is anything but money.

– Tim Bourquin

Tim Bourquin is a co-founder of Traderinterviews.com. It’s a website that analyzes the methods of successful traders. I think his five observations about wealthy traders are interesting. Let’s look at them.

1. They plan every single trade. EVERY SINGLE ONE.

Nothing surprising here. It just means they know in advance when and how they’re going to enter a trade, how they’re going to exit, and how much they’re going to risk.

2. They stopped trying to pick tops and bottoms years ago.

In other words, they don’t trade against the trend.

3. They are patient with winners – and ridiculously impatient with losers.

They let their profits run and cut their losses short. Really short.

4. They trade one market. ONE.

This is the one that got my attention. Whether or not I agree with it depends on what he means by “one market.” If he means they don’t try to trade stocks and futures and forex  — all at the same time — I agree. If he means they focus on one particular stock, I disagree.

But I love his comment, “…it’s not the mood of the market itself but the moods of the market participants!” That’s exactly right. Someone once described successful trading as like judging a beauty contest. Except you’re not trying to judge the beauties themselves. Instead, you’re trying to figure out what the other judges are thinking about the beauties. It’s the same with the market.

5. Their benchmark for success is anything but money.

Whenever someone asks me about learning to trade, I ask, “Why do you want to trade?” They will invariably say to make money. Wrong answer. Your focus should be on improving the psychological aspects that will make you a better trader or investor. Many of them are the same things that will make you a better person — like discipline, for example. If you do that the money will take care of yourself.

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