When looking at the three bear market periods mentioned above, the 50-day EMA would have protected an investor much like the 200-day EMA, losing just 7.00, 31.80 and 15.20%, respectively.
50/200-day EMA Crossover strategy – buy when the 50-day EMA breaks the 200-day EMA and sell when it falls below the 200-day EMA.
Using this approach would have returned 7.02% a year during 1971-2009 with 33% less volatility than a buy-and-hold approach to the S&P 500.
Looking at the bear markets mentioned above, the 50/200-day EMA would have cost investors 15.30, 8.50 and 11.20%, respectively. The numbers are somewhat comparable to the other two strategies and much better than a buy-and-hold strategy. [7 ETF Rules to Mind.]
Overall, the 50/200-day EMA had the least number of incorrect signals.
In conclusion, using any of the three strategies above can help reduce portfolio risk without sacrificing too much or, in some cases, any gains, when compared to a buy-and-hold strategy on the same index. You can set price or trend alerts by using our premium tools so that you never miss a trading opportunity; read more about it here.
For more stories on ETF investing, visit our ETF 101 category.
Sumin Kim contributed to this article.