"Gut feeling" my arse. Felix and these other guys saw the same chart in October 87 as all of us. I'm just a simple bloke from up north but I've said before - when price and the 20EMA close below the 50, get out. Have a look at the Dow for October 1987 and you'll see that calling the crash after dinner in Germany on 19th October was actually behind the game.
tomorton, so if price and ema 20 both close below the ema 50, you get out, then get back in when? when one or both of ema 20 or price close above the ema 50? Thanks!
These would be mandatory features on the chart before I considered going long but I'd prefer to wait until a long-term trend of some additional strength and consistency has built up on all the US indices. Until then I'm using the funds in trend-following forex trades.
Think he meant the night before, Sunday October 18th. Anyway. But I took a look at 1987 and yes EMA 20 crossing EMA 50 happened before the biggest chunk of the drop, although RSI diverged right at the top - days and days before: Then this year the EMA's signaled way after the drop while McClellan Oscillator and ROC diverged, once again at top:
Yes, the EMA's did not signal in advance of the big drop this year but they will do 3 times out of 4. That's good enough to take note when it happens. Of course, additional "normal" risk management rules still apply. I find from my log that I was stopped out by a trailing stop on 6 full-size S&P longs and cut one Nasdaq100 long to 20% on 30/01. The remaining fractional Nas long was stopped out 02/02.
The simple rule would have got the trader out of US equities before 16 of the 20 largest single-day falls in the Dow since 1900 - sell when price and the 20EMA close below the 50EMA. This would have included the worst single day crash and the subsequent bear markets in 1929, 1987 and 2007, 2008. Also 9-11.