- If the Nasdaq is trading above its 100 day simple moving average, you buy it
- If the Nasdaq is trading below its 100 day simple moving average, you sell it and go in cash
Here is an example of how this strategy would have worked for this year:
The Nasdaq was trading above its 100 day moving average for all of 2013, so you'd have bought and held. If the market is going straight up, I have nothing against buying and holding.
Where this strategy shines, however, is in bear markets. The chart below shows the Nasdaq during the year 2002:
By selling and going into cash for most of 2002, the strategy does not make any money, but it does preserve capital, which is key.
Here is a table showing a year by year performance breakdown of the strategy versus simply buying and holding: (Source)
Over nearly the past 50 years, following this simple, passive, objective rule would have increased your rate of return by approximately 65%
In a sense, I use this strategy in all of my stock picks in that every one is always above its 100 day moving average. In fact, by buying stocks making new all time highs, you're pretty much always going to be doing this by default.
