Hi Toofuzzy. 3) (the part that bothers me) As a stock drops but is still above the moving average (maybe this happens rarely) AIM would have you buy before selling out as the stock drops below the moving average. You would then be selling stock at a lower price than you bought it.
Would #3 occur rarely enough that you wouldn't be losing money along with the usual wipsawing that occurs when following a technical indicators.
Such a combination occurred against the UK FT100 index in April and May 2002. AIM bought in April and the moving average was crossed (above to below) in May resulting in selling (stop-loss) at a 2% lower price. Overall however the ROCAR was a 14.1 gain factor over the 25.4 year history compared to 5.7 for conventional AIM (excluding income).
After stopping out, the FT100 continued on downwards from the 5085 price stopped out at down to 3560 at the lows. Re-entry back into stocks occurred at a 3925 price.
It's impossible to guarantee no wipsawing, especially with AIM signals on-top.
How does your method compare with 1) Only doing AIM SELLS above the moving average
2) Only doing BUYS below the moving average
but otherwise leaving AIM the same
That's more closer to MACRO-AIM, which leaves you exposed to greater downside price slide motions. From what I've seen the ROCAR isn't as good.
What if you had a different entry and exit point. Such as get out at 10 month (200 day) and get in at a 100 day or 50 day MA ?
There are a plethora of ways to use moving averages for trend following purposes, such as exiting at x% below and entry at y% above etc. Mebane notes that generally they're all similar overall. The 10 month m.a. and monthly reviews just help ensure you don't whipsaw trade too often.
Best. Clive.
News 
Market Data 
Discover 
AI
