This is a common question. A simple moving average is often the best way to gauge an investor’s performance, because as you move the price in the above chart, you measure the investor’s performance. The moving average over time is very similar to the S&P 500 and a way the best is to measure how the stock performs over time relative to some benchmark.
Below is a chart that compares three moving averages. Using the bottom chart as reference, we see that the S&P 500 has generally outperformed the Moving Average Convergence Dashed (MACD) since 1965, while the Dashed Average Convergence Line (MACL) has been the best performing MACD since 1998 (though the MACD has performed above average in 1998 and 2013).
Here is another chart, this time looking at the Dashed Average Convergence Line (MACL) performance over the past ten years. The MACL has outperformed the S&P 500 by $12.2 billion, or more than one-third! If you think the price moves are high for a period of months, your stock may be overperforming the MACD for awhile before declining again. But if, in particular, the moving averages move in tandem, then the price should move significantly higher over a period of time. This would be similar to moving averages in that they can help identify high volatility stocks at risk of being disrupted by the market, and if you have a stock that is not performing that well, or if you’re trying to move the market as a whole, consider looking at moving averages.
I have used the chart to measure my own performance over the past decade of moving averages, but I have not seen an actual moving average as the best way to measure a performance over time. For example, in 2013 I saw this chart that compared the MACD, Dashed Average Convergence Dashed (MACD), S&P 5000 and the S&P 500 over the past ten years. The MACD performed in particular well since 2011, with the S&P 500 outperforming, but the MACD actually performed below the S&P 500 over the final ten years of the chart, at a 10 year average return of 1.3%.
How to find the best moving averages?
A lot of moving averages come from historical benchmarks, as they are most often the best way to measure a stock’s performance. The best moving averages, as compared with the S&P 500, are often called the “divid
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