86% win rate. Worse than buy and hold.

Añadido: 2026-06-03

[00:00:00]All right, let's talk about the golden cross and death cross. This is something that is a very common trading strategy and I think it does some things well.

[00:00:10]The fact that it is so common that most of you have probably already heard about it. If not, we'll cover that. The it does a great job of getting people involved into systems and systematic thinking about the market. However, it's one of those things that the headline numbers fool a lot of people into thinking it does things that it doesn't and that it's maybe more interesting than it is. So, we're going to dive into those numbers and show you a way to really make sure you're analyzing a strategy correctly and that you have a back test that makes sense and is doing what it is that you want it to do. So, these are the headline stats that I think gets everybody super interested in this where it has a 79% win rate. When this golden cross happens, there's a 79% chance you're going to make money. And that's over 66 years of back test. And that they say, "Hey, that looks amazing." Well, this is the highlighted stats where again, you're right 80% of the time and you make 15% when you're right, then you lose when you're wrong.

[00:01:09]Uh, I did the numbers and I actually found over my time frame, which is a little bit short in year 2000 to date, it's actually a little better with an 86% win rate across it, which is amazing. And at 20 profit factor on that looks great. So, quickly, what is the golden cross and what is it that we're looking for? Well, golden cross is simply you're looking at the 50-day moving average versus the 200 day moving average. And when the 50 period moving averages crosses up over the 200, you buy. When it crosses back down, you sell. And that's the game plan for this strategy. Seems simple, right? You're crossing above. You're crossing down.

[00:01:48]You're getting out when that down that death cross happens, and you're getting in when this one when it crosses the other way. So, what is it? How did this get popularized? Well, if you go back to the year 2000, it did a really good job of getting out near the top and then getting in pretty near the bottom. And then again in 2008 it got pretty good job out near the top and down near the bottom. This is what got people super excited about it because they're looking back and saying well I could have avoided those two awful bare markets if I had just implemented this strategy and I get most of the money on the way back up. Now let's go into what matters a little bit more. Here are the actual equity curves of the two of them in which you can see the green line is the golden cross death cross and then the red line is just buying and holding of the S&P 500. Well, you make about 50% less of your money if you had done this strategy even though you miss some of the worst draw downs. Why is I think the big thing and the draw down of the S&P 500 is 55% for this period of time and the draw down the strategy is only 33%.

[00:02:54]However, if you take out 2000 and 2008, which is where that 56% draw down happened, not only do you get the same draw down as the overall market, but you get a little bit of worse recovery. And a lot of that happened because of 2020, right? 2020, you actually get out of the market right at the lows. That's when the cross down happened. At the very lows of the market, that's where you sell out of your position and then you buy back in when the market's at highs.

[00:03:21]So you had to sit through the entire draw down and then a little bit of a bounce and then you're selling and then it rips back to to highs. Now 2022 it did a little bit better where it gets you out. But then if you look at say right 2025 this is the tariff tantrum low. The same thing it gets you out right at the lows and doesn't get you back in till right at the highs. So it shows the flaw in the overall system.

[00:03:46]And this is why it is so important that what it is roughly that a system is looking for because you want to know what it is that you're getting involved in and making sure that you're looking at the equity curve because if you focus right here on the equity curve, it looks amazing, right? You avoided all of the do you got most of the dot rip, you avoided most the dot fallback, you got the the financial bubble rip, and you avoided most the drawback. And if you just end the back test right here, it looks absolutely amazing. But then you can see the market changes slightly over time where bare markets that we have just seem to happen faster. We get a faster news flow, faster bare market, faster recovery from the bare market. So this indicator by definition using these slower moving averages is slower to react in this way. So you're able to not necessarily save yourself from these big draw downs that happen especially in in like 2025 where it is now disadvantaged to being this slow when it comes to different markets. So that's one thing.

[00:04:54]Fast down, fast back up, you lose money on, but that's I guess livable. But the other thing is what would happen if the market entered a prolonged period of time in which the 50 and the 200 continued to cross back and forth? We haven't really seen that too much in the data in the past. It's why they pick slow moving averages. But periods like this, you're selling down here and then you're buying back up here and then you're selling down here again. and you're buying back up here. So over this year or so period, you're losing money compared to the market that's holding even because you're moving using these slow averages. And again, it just it is the way the market is programmed here.

[00:05:36]It's the way the system is programmed and it shows a good way to evaluate systems. Well, if you are incredibly slow in nature or if you believe that slower bare markets are in our future, this could be a strategy for you.

[00:05:50]However, if you're trying to use a system to be to be reactionary, you're leaving a lot on both sides of the table. So, I'm not saying that this is ne necessarily a horrible system and I'm not saying it's amazing system. It's not something that I would trade. Everything we do at Sats Trading is a little bit more reactionary. However, it is showing you exactly what I think a newer systematic trader should think about.

[00:06:12]Here are the headline numbers that look amazing. Well, that's useless unless I can run a back test, see how it actually performed, see where like the the bare markets and the bull markets line up and is there any advantage to it recently and then also what is it that it's trying to do and how could I change it?

[00:06:31]So, for example, let's assume that these bare markets that have happened faster ever since 2008 are going to continue to be like this where you're going to have big spikes lower uh over very reactionary news and the market will recover just as fast, but you still want a way to stay out of them. Well, maybe shorter term moving averages are the way to do it. Maybe the premise of when one moving averages crosses under another isn't bad or broken, but what it's doing is it's saying, okay, this worked in the past, but because things are faster now, it doesn't work right now. You can just adjust the strategy. So maybe it's a 10 period moving average crossing under a 200 or a five period moving average.

[00:07:13]These are great ideas and it's the same as when I ever I do these debunking of of strategies ideas is I always want to highlight where they got things right and where potentially you could take the strategy learn from it adapt it a little bit and then maybe make it something that makes sense to you that makes sense in current market environments and something you could trade. So, you want more of this statisticalbased content, make sure you come on over to stats.com.

[00:07:39]Uh, we I put everything in front. Every trade is shown. We're actually implementing something soon called the draw down letter that when an individual system goes into draw down, I will reach out to all clients directly. Uh, you can download the 25-year back test, a little PDF that I wrote talking about how I back test different strategies. You can get all that over at setsrading.com. end until I talk to you guys on Friday.