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Journal of Asset Management

, Volume 14, Issue 3, pp 182–194 | Cite as

Breaking into the blackbox: Trend following, stop losses and the frequency of trading – The case of the S&P500

  • Andrew Clare
  • James Seaton
  • Peter N Smith
  • Stephen Thomas
Original Article

Abstract

In this article, we compare a variety of technical trading rules in the context of investing in the S&P500 index. These rules are increasingly popular, both among retail investors and CTAs and similar investment funds. We find that a range of fairly simple rules, including the popular 200-day moving average (MA) trading rule, dominate the long-only, passive investment in the index. In particular, using the latter rule we find that popular stop-loss rules do not add value and that monthly end-of-month investment decision rules are superior to those which trade more frequently: this adds to the growing view that trading can damage your wealth. Finally, we compare the MA rule with a variety of simple fundamental metrics and find the latter far inferior to the technical rules over the last 60 years of investing.

Keywords

trend following S&P500 stop losses trading frequency higher moments fundamental investment metrics 

Notes

Acknowledgements

We are grateful to an anonymous referee and the editor for instructive insights.

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Copyright information

© Palgrave Macmillan, a division of Macmillan Publishers Ltd 2013

Authors and Affiliations

  • Andrew Clare
  • James Seaton
  • Peter N Smith
  • Stephen Thomas
    • 1
  1. 1.Cass Business SchoolLondon EC1Y 8TZUK

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