The rules
In the most simplistic of ways, you can think of this as a method that instructs you either to invest your money in the stock market or to place it in an instant access interest-bearing savings account (cash).
It seeks to keep your money in the stock market when prices are moving higher and in cash when they’re not.
A ‘buy (invest in the stock market)’ signal is active whenever
the most recent 30-week moving average figure is greater (higher) than the most recent 50-week moving average figure.
A‘sell (savings account investment)’ signal is active whenever
the most recent 50-week moving average figure is greater (higher) than the most recent 30-week moving average figure.
To summarize these rules,
when the average weekly closing price for the last 30 weeks is a higher figure than the average weekly closing price for the last 50 weeks,
there is a strong probability that the stock market will move higher in the long term and it is in your interest to invest.
In essence, the System forces you to draw a line in the sand that, once crossed, indicates a potentially bullish environment has been entered.
Conversely,
when the average weekly closing price for the last 50 weeks is a higher figure than the average weekly closing price for the last 30 weeks,
there is a strong probability that the stock market will move lower in the long term and it’s in your interest to close any outstanding positions to prevent you incurring losses from a downward movement in prices.
Through both historical research and actual experience, I have found this strategy to be an effective way of participating in some great bull markets, while avoiding some of the worst bear markets.
For the avoidance of doubt, and I apologize to any readers if I’m teaching them to suck eggs,
the System can only be in one of two signal conditions: a ‘buy’ signal is active or a ‘sell’ signal is active.
Always use the ‘buy’ signal to invest in the stock market and the ‘sell’ signal to reduce your stock market exposure to zero and invest your cash in an interest-bearing savings account with a well-known and respectable institution.
This might seem obvious but if you already hold a stock market position and your weekly analysis generates a ‘buy’ signal, no further action is required, because you are already participating in the market;
and, conversely,
if you do not hold a position when your weekly analysis indicates a ‘sell’ signal, no further action is required, because you have no position to get out of!
