Implementation and Taxes

The rule is the same everywhere. What differs are the products, the clock and the tax.

Products

The rule needs two roles: something leveraged for the invested side and something quiet for the time out of the market.

For the invested side, leveraged products on the common indices are available in Europe. Some are funds under European law, others are exchange traded debt securities.

The difference is not merely formal. A fund holds ring-fenced assets that are unaffected by an insolvency of the provider. If it tracks the index through a swap, a risk towards the swap counterparty remains; the European fund rules limit it to at most ten percent of the fund's assets per counterparty. A debt security is a claim against the issuer, and many are collateralised, which reduces the risk without creating the same legal position.

For the fallback side, money market funds or instant-access savings are the candidates. Neither is risk free, and both yield very differently depending on the interest rate environment.

Which product belongs to your version is in the chapter Parameters. By default the signal series is the unleveraged index of exactly that product.

In the United States both roles are available as exchange traded funds: leveraged index products for the invested side, money market and short-dated Treasury products for the time out of the market.

That removes a distinction that matters in Europe. Here both sides are funds rather than debt securities, so there is no issuer credit risk to weigh against the fund structure.

Several products can track the same index with the same leverage. They are not interchangeable for this strategy: each version names exactly one product, and by default the signal series is the unleveraged index of that product.

Implementation

The most important European friction is one of timing. The signal arises at the close of the index series, and for a US index that moment falls after the close of European trading venues.

Many of these products also trade at European venues in the evening, shortly before or after the US close. Trading then comes close to the close of the signal day. Trading only on the following trading day carries the overnight gap. Whether and how your version counts a lag between signal and trade is in the chapter Parameters.

The usual points come on top: not every broker carries the products in question, bid-ask spreads differ across trading venues, and for products on US underlyings the exchange rate moves your result.

With a running savings plan, the question is how it behaves on an exit signal, because it keeps buying while the rule has sold. The ways that stay consistent with the rule are in the chapter FAQ.

Index and product are struck at the same time, so a signal at the close can be implemented without a time zone gap. Whether and how your version counts a lag between signal and trade is in the chapter Parameters.

There is no currency layer between the index and the account. The signal, the product and your balance are all denominated in the same currency, which removes one of the sources of divergence that European readers have to think about.

What stays the same is the daily rhythm. The rule is defined on closing levels, which means looking once per trading day, and it cannot be handed to a standing stop order at a broker.

Tax

This is a rough orientation and does not replace tax advice. Individual cases are a matter for a tax adviser. As of November 2026.

Within the EU the tax treatment of leveraged products differs considerably from country to country. For EU countries other than Germany, Austria and France this page makes no statement; the respective national tax law applies there.

For this strategy one thing matters above all: every exit realises gains or losses. In Germany, realised gains are subject to flat-rate investment income tax (Abgeltungsteuer), plus solidarity surcharge and church tax where applicable.

Unlike a held position, the deferral of tax is lost. The amount paid out no longer compounds, and on re-entry it is not available to you any more.

From that follows the one tax sentence that really belongs to this strategy: a version with few signals is more economical in this respect than one with many. In a backtest without tax you cannot see that difference.

The legal form of the product changes the size of the effect. For investment funds with a sufficiently high equity ratio, the partial exemption (Teilfreistellung) leaves part of the income untaxed; exchange traded debt securities are not investment funds, so it does not apply to them, but in return no advance lump sum falls due on them. The partial exemption softens the effect, it does not remove it.

Two items fall due regardless of your signals: above all for accumulating funds the advance lump sum (Vorabpauschale), an annual prepayment on later gains, and on the fallback side the tax on interest.

Personal circumstances, such as investment income feeding into social contributions or a business account, can reverse this picture; on those this page makes no statement.

What the tax assumption at the chart simplifies out of this situation is in the chapter Backtest; its assumptions are listed there.

In Austria, realised gains from capital assets are subject to capital gains tax (Kapitalertragsteuer, KESt) at a flat 27.5 %. For this strategy that means, as in any taxable account: every exit realises gains or losses, and the amount paid out no longer compounds.

There is no partial exemption. For funds, deemed distributed income (ausschüttungsgleiche Erträge) is added every year and is taxable even without a sale.

Losses can only be offset against other income from capital assets of the same calendar year, such as price gains or distributions, but not against interest on bank deposits. There is no loss carry-forward: whatever loss remains at the end of the year lapses. Whether an exit at a loss counts for tax therefore depends on whether offsettable capital income stands against it in the same year.

The tax assumption at the chart computes the simplified German case, not this one.

In a taxable account (compte-titres), realised gains in France are by default subject to the flat-rate tax Prélèvement forfaitaire unique (PFU, flat tax); on election, the progressive income tax scale can apply instead to all investment income of a year. As of November 2026 the flat rate is 31.4 %, made up of 12.8 % income tax and 18.6 % social charges. For this strategy that means, as in any taxable account: every exit realises gains or losses.

Interest on a loan used to buy securities is not deductible under the flat tax.

Losses (moins-values mobilières) are first offset against gains of the same kind in the same year; whatever remains after that can be carried forward for ten years.

The tax assumption at the chart computes the simplified German case, not this one.

In a taxable account, every exit realises a gain or a loss, and that is the whole tax story of this strategy. Frequent switching turns unrealised gains into realised ones earlier than holding would.

Two points follow that are specific to a rule that trades on signals. First, positions held for a year or less are taxed less favourably than long-held ones, and a trend rule regularly exits well inside a year. Second, when the rule sells at a loss and buys the same or a substantially identical security within 30 days before or after the sale, above all on a quick re-entry after a false signal, the wash sale rule disallows that loss for now and carries it into the cost basis of the new position.

Inside a tax-advantaged retirement account neither point applies, because switching triggers no ongoing tax at all. That is why US results for this strategy tend to look better than the same rule does in a European taxable account, and why comparisons across the two settings need care.

One caveat about the chart: the tax assumption computes the simplified German case, not this one. For a tax-advantaged US account, read the curve without the tax assumption; this page does not compute the tax of a taxable US account.