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Several studies have shown that stocks that have done well in recent months are likely to outperform other stocks over the following several months. Fair Weather Strategies' long term moving average cross-over system exploits this market inefficiency. The strategy tends, in general, to keep the investor holding securities that have high “relative strength” as compared to other securities.
Past performance is no indicator of future return. There is no guarantee that applying a moving average strategy will either increase your portfolio’s return or lower its volatility as compared to any other strategy. Some securities and market environments are particularly unsuitable for trading using a moving average system. A moving average strategy will likely incur higher commissions than a buy and hold strategy and may or may not increase your taxes relative to buying and holding.