I have never heard of the mungofitch 99 day indicator, so I looked into it. It appears to be a 99 day price channel (showing the highest high and lowest low of the past 99 days). I know this is going OT on this board but I spent a great deal of time investigating pricing indicators, channels being one of them. These price channels were popularized by Richard Donchian back in the 1960’s, when he traded commodities. For quite some time back in the 1960’s through the 1980’s, one could make a good deal of money using trend following systems on commodities. Moving averages, price channels, stochastics, Bollinger bands and more were used to indicate the trend. It doesn’t work anymore. You’re lucky to break even since the early 2000’s. You’re more likely to make money writing a book on trend following the commodities market than you would actually trend following the commodities market. Many blame the popularity of such systems themselves as the prime reason for failed breakouts causing a series of small losses, negating the returns when you finally do catch a major trend.
Some use these moving averages on the stock indices as well, saying the Dow or S&P is at, above or below the 200 DMA, or the DMA of your choice.
What these moving averages and trend indicators do is sometimes keep you in major moves upwards, they may even keep you out of a major bear, but they will constantly have you selling in short term corrections, meaning, one is better off staying fully invested at all times if your objective is the highest long term returns as possible. If you’re willing to sacrafice returns for lower volatility, then these moving averages or trend indicators may be of help.
There is nothing out there, no magical indicator, that will keep you fully invested on the way up then have you sell on ONLY the correction that turns out to be a bear. You will sell on all the corrections. This is what hurts long term returns.
You’re welcome to try backtesting yourself, as I have. I know by backtesting to disregard any article that talks about a 200 DMA being a harbinger of things to come. If your objective is long term high returns, the best practice is to remain fully invested regardless of what indicators are doing.
In other words, selling is only beneficial to those who cannot stand the volatility or the volatility does not fit their risk profile, because it most certainly does not lead to higher long term returns. This is because for the past several hundred years of recorded data on the stock market, the long term trend has been up. So when you have a habit of taking yourself out of the stock market, you will eventually overall miss upwards moves in that long term trend.
