Long-Term Moving Average Trend Filter with a Three Percent Exit Band

Summary

This rule-based, long-only system aims to participate in broad equity-market advances while moving out of stocks during major declines. Its described signal compares a shorter moving average with a 200-day simple moving average: buy when the shorter average rises 3% above the long average, and exit when it falls 3% below. The author suggests checking the signal weekly and placing trades on Monday, with the portfolio fully invested while long and potentially allocated to bonds when the system is flat. Markets named include German, US, Japanese, European, and global equity indexes.

The document claims the filter can reduce drawdowns by avoiding bear markets, but supplies no backtest results, benchmark comparison, or risk statistics to support that claim. It also advocates no stop-loss or money-management rules, and says no optimization is needed. The accompanying code uses moving-average periods of 40 and 8, which do not straightforwardly match the prose’s 200-day and 38-day descriptions; the timeframe conversion is not explained. The system should therefore be read as a proposed trend-following rule with implementation and validation questions, not as established evidence of long-term wealth growth.

Key ideas

• The proposed system is long-only and uses a long-term moving average as a market trend filter.
• It enters when a shorter average is 3% above the long average and exits below a 3% lower band.
• The author proposes weekly signal checks and considers bonds as an allocation while the equity signal is flat.
• The document asserts lower drawdowns but provides no supporting performance data.
• The stated moving-average periods differ from those shown in the code, and no timeframe explanation is provided.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.