Since November 1993, a rule that held SPY (the S&P 500 ETF) only while its price closed above its 200-day moving average returned 8.39% a year. Holding the fund throughout returned 10.84%.
The rule also cut the worst drawdown, the largest fall from a peak, from 55.2% to 28.9%. It made 211 changes of exposure, meaning switches between the fund and cash. So the 200-day line reduced losses but did not add return. This guide tests that result on faster lengths and other funds.
What is the 200-day moving average? It is the mean of an asset's last 200 daily closing prices. On SPY, a rule that held the fund only above that line returned less than holding in this backtest, but it cut the worst drawdown from 55.2% to 28.9%.
On SPY, faster averages did worse: return a year rose with every step up in length, from 0.64% at 10 days to 8.39% at 200 days.
The 10-day rule's worst drawdown on SPY, 64.7%, was deeper than holding's 55.2%. Five of the seven funds did the same.
Across 105 tests, between 5 and 12 beat holding on return, depending on the start date.
What is the 200-day moving average?
A moving average is the mean of a price over a set number of recent days. The 200-day version takes the last 200 daily closes. Each day the oldest drops out and the newest comes in, so the line moves. The moving average guide works through the sum.
How the rules were tested
Each rule holds the fund while its price closes above its own n-day moving average. Otherwise it holds cash. The lengths tested are 10, 20, 50, 100 and 200 days.
The signal is read at the close. The position earns the next day's move, so no rule sees the future.
Prices run from 11 November 1993, the first day SPY has a 200-day average, to 16 October 2026, with dividends counted. Holding and every rule start on that same day. Cash earns nothing. Each change of position costs 5 basis points, where a basis point is one hundredth of 1%.
Return a year is the compound annual growth rate (CAGR). CAGR over annualised volatility divides it by volatility, the typical size of daily price swings scaled to a year.
What the 200-day rule did on SPY
Rule | Return a year | CAGR over annualised volatility | Worst drawdown | Changes of exposure |
|---|---|---|---|---|
Buy and hold | 10.84% | 0.58 | -55.2% | 1 |
10-day | 0.64% | 0.05 | -64.7% | 1,464 |
20-day | 2.66% | 0.24 | -49.6% | 973 |
50-day | 4.03% | 0.36 | -47.0% | 583 |
100-day | 6.37% | 0.55 | -52.7% | 359 |
200-day | 8.39% | 0.69 | -28.9% | 211 |
Source: YX Insights price data; YX Insights
The table shows each drawdown as a negative number.
The 200-day rule returned 8.39% a year against 10.84% for holding. Its worst drawdown was 28.9% against 55.2%.
Its 0.69 on CAGR over annualised volatility is above holding's 0.58. That column assumes cash earns nothing. The count of rules beating holding on it also swung widely with the start date, so it is not treated as a finding.
Faster moving averages did worse on SPY
Source: YX Insights
Chart 1 shows return a year and worst drawdown for each length on SPY. The grey lines mark holding.
Return rose with every step up in length. None of the five rules reached holding's 10.84%.
The worst drawdown did not improve in a straight line: the 100-day rule's 52.7% was worse than the 50-day rule's 47.0%. The two ends are clear, though, at 64.7% for the 10-day rule and 28.9% for the 200-day rule.
Why the 10-day rule trades so much
The 10-day rule made 1,464 changes of exposure over the same period, against 211 for the 200-day rule.
A 10-day average sits close to the price, so the price crosses it often. Each cross flips the rule between the fund and cash, at 5 basis points a time. A 200-day average sits further from the price, so only a longer move crosses it.
The 10-day rule was invested 61.7% of days against 77.4% for the 200-day rule but still returned the least of the five. The test does not say how much of that came from costs and how much from timing.
The 10-day rule left the worst case deeper than holding
Source: YX Insights
Chart 2 sets the 10-day rule beside the 200-day rule and holding on SPY. The 10-day rule's worst drawdown was 64.7%, against 55.2% for holding. Four other funds did the same, making five of the seven:
TLT (the long-term US Treasury bond ETF): 62.4% against 48.3%.
IWM (the Russell 2000 ETF): 59.7% against 59.0%, also close to a tie.
DIA (the Dow Jones Industrial Average ETF): 57.2% against 51.9%.
QQQ (the Nasdaq-100 ETF): 83.1% against 83.0%, close to a tie.
Four of the five are US stock funds that move together, so this is not five separate confirmations. Even so, a fast rule can do more than fail to protect. It trades constantly and can leave the worst case worse.
Does the 200-day result hold across funds and start dates?
The study ran 15 rules, the five lengths plus ten pairs of them, on seven funds. That is 105 tests, repeated from seven start dates between April 2006 and January 2015, each taking a 200-day warmup before its first trade.
Beating holding on return was rare: between 5 and 12 of the 105 tests, depending on the start date. Over each fund's full history, the 200-day rule on its own beat holding on return on none of the seven funds.
A smaller worst drawdown than holding was common, at 82 to 100 of the 105 tests. The direction held at every start date, but the size did not.
The count is highest in the two windows that sit through the 2008 crash in full, and lower in every window that opens later. Each window takes its own 200-day warmup before its first trade, so the one nominally opening in January 2008 does not start until October 2008, after most of that year's fall, and the last does not start until October 2015. Much of the drawdown result is a statement about owning that crash.
These counts are tallies, not hit rates, because SPY, QQQ, DIA and IWM are four views of one market. The 200-day rule did not always cut the worst drawdown either. On DIA it was 54.1% against 51.9% for holding. On TLT it was 48.5% against 48.3%.
What the test leaves out
Cash earns nothing. A rule that sits out part of the time would have earned something on that cash. The assumption understates every rule that holds cash. The moving average guide credits cash with Treasury bill interest and ignores costs, so its figures differ.
A different ratio. CAGR over annualised volatility divides a compounded return by a measure built from daily moves. It is not the Sharpe ratio.
Seven funds are not seven tests. Beyond the four US stock funds, GLD (the gold ETF) and SLV (the silver ETF) move together. A count is not a hit rate from independent trials.
Simple costs. The test charges 5 basis points per change, with no wider spreads in a sell-off and no tax. The fastest rules would have done worse in practice, which strengthens the finding about them.
Selection. The seven funds are large survivors picked in 2026. The results illustrate the idea and do not describe funds in general.
The earliest start date, 28 April 2006, is only SLV's first trading day.
What the 200-day line is good for
On this evidence, the 200-day line reduced losses on SPY and did not add return. It gave up yearly return in exchange for a smaller worst fall.
Our trend model uses this type of analysis. It chooses the averages for each asset separately, because no single pair suited every fund. The rules in this guide say nothing about how any signal we publish is built.
In this backtest, whether the 200-day line matters depends on the question: for return it did not, but for the size of the worst fall on SPY it did.
Learn more with YX Insights
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Common questions about the 200-day moving average
Does the 200-day moving average work?
In this backtest it reduced losses but did not add return. On SPY the 200-day rule made 8.39% a year against 10.84% for holding, with a worst drawdown of 28.9% against 55.2%. Over each fund's full history, it did not beat holding on return on any of the seven.
Is a faster moving average better than a slower one?
On SPY, no. Return a year rose with every step up in length, from 0.64% for the 10-day rule to 8.39% for the 200-day rule. The 10-day rule's worst drawdown, 64.7%, was deeper than holding's.
What is the 200-day moving average of SPY today?
The level changes every trading day, so a fixed figure here would go out of date. It equals the mean of SPY's last 200 closing prices. The moving average guide works the calculation through on a dated example.
DISCLAIMER: This article is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.