09 March 2011

Follow Up : Long over 200DMA & Short below 200DMA

As we saw in last few posts, that over a long term period buying above 200DMA and being in cash or shorting below 200DMA provided excellent returns. But what if we look at these strategies in a shorter time frame? Will they continue to be so?

I am attaching a chart of our best performing strategy of Long above 200DMA and Short below 200DMA for a period of just over 2 years. It starts from 1st day of 2009 when Nifty was just under 3000.



As you can see from the chart our portfolio starts good, but quickly gives up all gains and remain a laggard till May 2010, but catches up with Nifty there, almost tracks it point to point, till Nifty falls back below 200DMA again this year, due to which it eek out some gains. 5870 compared to 5530 is definitely not bad, but it doesn't gives us the "kick" that we were looking for.

So what can we extract out from past few studies. One is that there is no (easy) way you can make "fast money" in the market. Second, even if you are in for long term, discipline is the most important aspect. How simple it would have been to ignore a 200DMA crossover of price in this 20 year period, or how easy it would have been to succumb to the temptation to take out some profit. Looks like investing is very similar to the art of making wine, the longer you wait the better it gets!






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