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The Death Cross

Posted by: Tom Keene on October 14, 2011

Moving Averages are the Land of the Amateur. By definition, they lag. And then, there is the immodest question of how many units to use and, how many moving averages to use.

Heavy lifting: the weight, the back-tested lifting has been done for you.

First, there is ample mathematical proof that moving averages taken in their own space, taken discretely, are a license to lose money. Only, only when used with other analysis do they add value.

Secondly, very smart people have done a lot of work in this space (and the euclidian “space” between two adjacent lines of a three-moving average study on a log y-axis is a big deal.)

Thirdly, and finally, moving averages are nothing more than lagged, trend-based visual signposts across a given series’s x-axis continuum.

Confused? Study George Kleinman, TMVTT, and re-read and re-read and…

Moving averages will not MAKE you money. They will assist in NOT LOSING money. And if you do lose capital, blame all, blame all on the Death Cross. Discuss.

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EconoChat captures Tom Keene's thoughts on economics, finance and investment. He is editor-at-large for Bloomberg News and hosts Bloomberg Surveillance and Bloomberg on the Economy on NYC1130, Sirius 129 and XM 130 and Surveillance Midday on Bloomberg Television. His complete interviews are at Tom Keene on Demand. Look for Tom on twitter @tomkeene

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