Trade-offs

Calculated with Scalumbo · SMA 200 · no buffer

In favour

6 points

The rule is unambiguous, verifiable and can be stated in one sentence.
No assessment of market conditions is required.
Long, deep declines were historically often left early.
Signals are rare, so the ongoing effort is small.
The current state can be read off unambiguously at any time.
The filter ties the use of leveraged products to a verifiable condition, as one of several possible ways.

9 points

Sideways markets produce false signals: a sale on the way down, a repurchase higher shortly after. Each round trip costs.
The filter reacts with a lag by construction. Part of the decline has already happened before the signal appears.
Crashes overnight or across a weekend are not caught.
Every switch triggers tax wherever sales are taxable.
The widely used parameters were selected against history.
The fallback block is not risk free and yields very differently depending on the interest rate environment.
Two investors following the same rule from different starting dates can end up with markedly different results over years.
Part of the benefit is also available from a fixed mix of leveraged and unleveraged holdings without any timing.
Without leverage the filter contributes less: spreads, taxes and missed recoveries still accrue, while the additional volatility drag it is meant to contain does not arise without leverage.