Claim check: The 200-day moving average rule
“Only be invested when price is above the 200-day moving average.”
What the data says
Partly Partly: the rule gave a maximum drawdown at least a quarter smaller together with a higher Sharpe ratio in 5 of 10 markets over 2010-10-07 to 2026-11-10 and in both halves of the history in 3; the median CAGR was +4.3% against +3.3% for buy-and-hold and the median maximum drawdown -51.2% against -71.2% (before costs). It holds in some markets, not across the board.
It holds in some markets or periods, leans the right way without proof, or helps on risk but not on return.
Who says it
Mebane Faber's 2007 'A Quantitative Approach to Tactical Asset Allocation' and Paul Tudor Jones's '200-day MA' remark made it a mainstream rule.
Origins are as commonly cited and were not independently verified.
How we tested it
Long from the day after the close is above its 200-day simple average, cash from the day after it closes below. Compared with buy-and-hold over the same dates. The rule counts as working only if it cuts the maximum drawdown by at least a quarter and also improves the Sharpe ratio, in the full history and in both halves.
Results
| Market | Period | CAGR | Buy and hold | Sharpe | Buy and hold | Max drawdown | Buy and hold | In market | Trades | Reading |
|---|---|---|---|---|---|---|---|---|---|---|
| S&P 500 | 2010-10-18 → 2026-11-10 | +10.5% | +14.2% | 0.91 | 0.87 | -20% | -34% | 85% | 40 | Full history only |
| Gold | 2010-10-18 → 2026-11-10 | +5.4% | +6.5% | 0.46 | 0.46 | -34% | -46% | 61% | 69 | No effect |
| Silver | 2010-10-18 → 2026-11-10 | +5.1% | +4.2% | 0.33 | 0.29 | -61% | -76% | 49% | 68 | No effect |
| Oil | 2010-10-18 → 2026-11-10 | -1.5% | -4.4% | 0.05 | 0.06 | -69% | -95% | 51% | 93 | No effect |
| Natural gas | 2010-10-18 → 2026-11-10 | -7.2% | -23.1% | -0.11 | -0.29 | -72% | -99% | 25% | 60 | Clear and stable |
| Commodities | 2010-10-18 → 2026-11-10 | +3.5% | +2.3% | 0.33 | 0.22 | -41% | -66% | 54% | 72 | Full history only |
| Agriculture | 2010-10-18 → 2026-11-10 | +3.0% | +0.4% | 0.35 | 0.10 | -31% | -62% | 47% | 52 | Clear and stable |
| EUR/USD | 2010-10-07 → 2026-11-10 | +0.2% | -1.3% | 0.07 | -0.12 | -15% | -35% | 48% | 60 | Clear and stable |
| Bitcoin | 2015-04-04 → 2026-11-10 | +59.0% | +63.0% | 0.96 | 0.90 | -70% | -83% | 61% | 38 | No effect |
| Ether | 2018-05-27 → 2026-11-10 | +40.0% | +16.3% | 0.73 | 0.50 | -71% | -86% | 51% | 23 | No effect |
Sharpe ratio minus buy-and-hold
Robustness: other settings
| Setting | Verdict on its own | Markets with a stable win | Markets where it won |
|---|---|---|---|
| Main setting | Partly | 3 / 10 | 5 / 10 |
| With a 1% band | Does not hold | 1 / 10 | 3 / 10 |
Stability across the two halves of history
A saying that only works in one half of the history is not much of a rule. Each row shows the effect in the full history, the first half and the second half; green means the claimed effect was present.
| Market | Full history | First half | Second half |
|---|---|---|---|
| S&P 500 | -20% vs -34% · +0.04 2010-10-18 → 2026-11-10 | -17% vs -19% · -0.03 2010-10-18 → 2018-10-25 | -20% vs -34% · +0.08 2018-10-25 → 2026-11-10 |
| Gold | -34% vs -46% · 0.00 2010-10-18 → 2026-11-10 | -34% vs -46% · +0.03 2010-10-18 → 2018-10-25 | -29% vs -28% · -0.10 2018-10-25 → 2026-11-10 |
| Silver | -61% vs -76% · +0.03 2010-10-18 → 2026-11-10 | -57% vs -72% · +0.09 2010-10-18 → 2018-10-25 | -45% vs -58% · -0.06 2018-10-25 → 2026-11-10 |
| Oil | -69% vs -95% · -0.02 2010-10-18 → 2026-11-10 | -62% vs -82% · -0.08 2010-10-18 → 2018-10-25 | -59% vs -85% · -0.03 2018-10-25 → 2026-11-10 |
| Natural gas | -72% vs -99% · +0.18 2010-10-18 → 2026-11-10 | -45% vs -90% · +0.26 2010-10-18 → 2018-10-25 | -69% vs -94% · +0.12 2018-10-25 → 2026-11-10 |
| Commodities | -41% vs -66% · +0.11 2010-10-18 → 2026-11-10 | -30% vs -63% · +0.31 2010-10-18 → 2018-10-25 | -41% vs -38% · -0.07 2018-10-25 → 2026-11-10 |
| Agriculture | -31% vs -62% · +0.26 2010-10-18 → 2026-11-10 | -25% vs -52% · +0.35 2010-10-18 → 2018-10-25 | -14% vs -24% · +0.09 2018-10-25 → 2026-11-10 |
| EUR/USD | -15% vs -35% · +0.18 2010-10-07 → 2026-11-10 | -15% vs -30% · +0.20 2010-10-07 → 2018-10-23 | -11% vs -22% · +0.17 2018-10-23 → 2026-11-10 |
| Bitcoin | -70% vs -83% · +0.06 2015-04-04 → 2026-11-10 | -70% vs -83% · +0.05 2015-04-04 → 2021-01-21 | -64% vs -77% · +0.02 2021-01-21 → 2026-11-10 |
| Ether | -71% vs -86% · +0.23 2018-05-27 → 2026-11-10 | -71% vs -86% · +0.28 2018-05-27 → 2022-08-19 | -41% vs -68% · +0.17 2022-08-19 → 2026-11-10 |
Context and cross-checks
Shown for context; not part of the verdict.
The site's own strategies
| Strategy | Market | Sharpe, 5 years | Benchmark, 5 years | Sharpe, full | Benchmark, full | CAGR, full | Benchmark, full | Max DD, full | Benchmark, full | Reading |
|---|---|---|---|---|---|---|---|---|---|---|
| MOM-05 Faber TAA | FABER-TAA | 0.91 | 1.11 | 0.62 | 0.47 | +4.6% | +5.3% | -17% | -38% | Full history only |
Sharpe ratio minus benchmark, full history · Benchmark = the buy-and-hold shown on the strategy pages.
The honest caveat
Test is on one price path per market; the rule's edge is mostly drawdown avoidance, which depends on a few crash episodes.
Descriptive statistics from historical data, before costs. Not a forecast and not investment advice.
Questions
Only be invested when price is above the 200-day moving average.
Partly: the rule gave a maximum drawdown at least a quarter smaller together with a higher Sharpe ratio in 5 of 10 markets over 2010-10-07 to 2026-11-10 and in both halves of the history in 3; the median CAGR was +4.3% against +3.3% for buy-and-hold and the median maximum drawdown -51.2% against -71.2% (before costs). It holds in some markets, not across the board.
How was this claim tested?
Long from the day after the close is above its 200-day simple average, cash from the day after it closes below. Compared with buy-and-hold over the same dates. The rule counts as working only if it cuts the maximum drawdown by at least a quarter and also improves the Sharpe ratio, in the full history and in both halves.
Related strategies on Quant Arena
Markets used
S&P 500 · Gold · Silver · Oil · Natural gas · Commodities · Agriculture · EUR/USD · Bitcoin · Ether