Testing the Simple Moving Average across Commodities, Global Stock Indices, and Currencies

Abstract

This article examines the risk-adjusted returns from a commonly used technical trading strategy. The author back tests a “simple moving average strategy” over a period of several decades on various commodities, currencies, and country stock indices. The results show that applying this strategy has provided before-tax returns comparable to, or better than, a buy-and-hold strategy, but with much less downside volatility. In addition, the article shows the strategy to be to be compatible with the concept of diversification: It lowers volatility significantly when applied to portfolios composed of multiple securities combined.