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With stock evaluations, we have the "golden cross" event where short and long term moving averages cross over and we have a potential bull market soon. I have seen some definitions use the 200 day moving average to the 50 day. I also saw another use 100 day to the 50 day. Then, of course, you can set your own time lines to research. Which is the most common moving day averages combination used for a golden cross analysis or observation in determining a potential future bull market?

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Seems like you've answered your own question. –  mbhunter Oct 28 '10 at 1:55
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4 Answers

The 'standard' in such moving average crossover systems is 50/200. The numbers are essentially arbitrary as long as the long term average is greater than the short term and there is some different between the averages in terms of the smoothing they provide (i.e. comparing a 74 day MA to a 75 day MA isn't what the system is intended for)

There are plenty of software programs that will let you run through many possible values for the system over historical data. I concur with the other answers in that this system/indicator alone isn't very good. However, I disagree with their blanket brushing off of technical analysis. There are many successful traders out there.

The moving average cross over system is perhaps the second most primitive example of technical strategies categorized as trend following systems (buying new recent highs and selling new recent lows being the most simple). This particular system isn't very powerful because of its poor use of simple moving averages. A simple moving average is intended to smooth out data, but smoothing comes at the cost of lagging from the present. A simple moving average essentially gives you an idealized smoothing of price action for the day at that is one half of their period ago. So your 200 day simple moving average shows you an idealized smoothing of price action 100 days ago. A lot can happen in 100 days and that is why this system is far from ideal.

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Not sure why this hasn't received any answers yet... the link to the investopedia page you posted explains it pretty well, however when you hear about a golden cross in the media, it is most likely a reference to the 50-day SMA crossing above the 200-day SMA. In general, a golden cross consists of a short term MA that was previously below a long term MA crossing above that LT MA, however the most common reference will imply a 50/200 day cross because this is considered as a stronger signal (compared to shorter MAs).

With that said, it's important to realize that the golden cross is just one of many technical analysis "signals", and the entire field of technical analysis is considered controversial, to say the least. Many studies, such as those examined in A Random Walk Down Wall Street, have found that after transactions costs are considered (e.g., the commissions you pay to your broker on every trade), "charting" is a losing proposition in the end.

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Technical analysis is insufficient. You're halfway to figuring it out if you start to question why a 50 day moving average vs 200 vs 173. Invest in companies that are attractively valued vs. their sales/growth/divends/anythingelsereal

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Haha. Nice edit. Censorship is insufficient :-P –  John Shedletsky Nov 19 '10 at 18:50
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Different moving averages work and not work for different indexes. I have seen simulations where during bull or bear markets the moving averages work differently.

Here is an example: http://www.indexresult.com/MovingAverage/Exponential/200/SP500

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