Today, Michael Covel reads a recent piece from Barry Ritholtz about the Death Cross: that foreboding moment when the 50 day MA falls below the 200 day MA. Then Michael looks at how a Twitter debate between Cliff Asness of AQR and Jerry Parker of Chesapeake Capital, sparked by the article, led to an examination of momentum v. trend following.
The so-called Death Cross is viewed by many to be an omen, a signal of dark days to come. And while that could be partly correct in the context of a complete system, the Death Cross is just a signal. It’s a mistake to think of it in apocalyptic terms that something will happen in 6 months time, etc. The Death Cross is the type of signal that can work for the investor with a robust, diversified portfolio within a system that doesn’t aim to predict the future. This is all about what’s happening in the present price, so you can take action now.
Michael also plays and comments on a Bloomberg interview with Barry Ritholtz, discusses the folly of predictive technical analysis, and hammers home the fact that trend following is the only proven form of quantitative trading.
In this episode of Trend Following Radio:
- The importance of ignoring old concepts
- Trend Following is about taking action
- Why no one can predict where the market is headed
- Incorporating the Death Cross into a diversified portfolio
- Understanding momentum trading
- The idea of “heuristics”
“Woe to the unwary trader who relies on the urban legends to inform an outlook.” – Barry Ritholtz
Mentions & Resources:
- Paul Mulvaney
- A Century of Evidence on Trend Following Investing
- Barry Ritholtz
- Cliff Asness
- Jerry Parker
- Death Cross
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