"Above the 200-day line you're invested, below it you're out." Few rules are quoted more often. Meb Faber turned it into arguably the most famous tactical strategy with A Quantitative Approach to Tactical Asset Allocation (2007). It's in every charting tool, every trading group, every second YouTube video.
But most explanations confuse two completely different things. The 200-week line (a crypto floor indicator) and the 200-day line (a trend filter). This is about the 200-day version — and we tested it not as a marketing claim, but as a standalone, fully wired strategy on our engine.
The setup
The rule is deliberately minimal — one parameter, no hidden knobs:
- Close above the 200-day SMA? → fully invested.
- Close below the 200-day SMA? → all in cash.
That's it. No leverage, no short, no second condition. Long or cash. It's the most honest way to test a single question: Does simply not being there during a falling market actually help?
Look-ahead free: the signal forms on the closed daily bar, the switch is realized the next day. Tested on daily bars across three universes:
| Universe | Assets | Window |
|---|---|---|
| Crypto Top 50 | up to 50 | from 2018 |
| Stocks Top 50 | up to 50 | from 2007 |
| ETFs | broad | from 2007 |
110 assets with testable history in total. Each asset produces dozens of regime switches over the years — we're well past the "under 30 trades = anecdote" line.
The result: three worlds
The interesting part is that the same rule tells three different stories across three asset classes. Each is measured against Buy & Hold of the same asset over the same window.
| Segment | Avg ΔCAGR vs B&H | Drawdown | Sharpe | Beats B&H (return) |
|---|---|---|---|---|
| Crypto Top 50 | +8.2 pp | shallower | higher | 58% of assets |
| Index ETFs | ≈ flat (gives up little) | −28.6 pp max DD | neutral | minority |
| Single stocks | negative | mixed | weaker | minority |
Let's read it segment by segment.
Crypto: here it genuinely wins
On crypto, the 200-day line isn't a compromise, it's a real edge. On average the strategy sits 8.2 percentage points of CAGR above Buy & Hold — and not by taking on more risk, but with a shallower drawdown and a higher Sharpe at the same time. In 58% of the coins tested it beats B&H on raw return too.
The reason is the nature of the asset: crypto bear markets are brutal and drawn-out (−70% to −90% is normal). Standing in cash through those phases avoids most of the damage and re-enters after the cross back up, before the next cycle runs. On crypto the line cuts exactly where the multi-year trends are.
Index ETFs: the textbook result
On broad index ETFs you see what Faber actually designed the strategy for. On return it gives up almost nothing — equity indices rise over the long run, and re-entering a few bars late via the 200-day line costs a small price. That price is small.
What you pay it for: −28.6 percentage points of average max-drawdown reduction. A −50% index crash becomes a far shallower path, because the strategy moves to cash before the deep part of the bear market. The Sharpe stays neutral — which is expected: you're not trading return for risk, you're smoothing the ride at near-equal return. This is "sleep better" in numbers.
Single stocks: not here
On individual stocks the rule works poorly. Single names carry more idiosyncratic noise than an index — the 200-day line produces more false signals (in, out, in), the trends are less clean, and the whipsaw costs eat the drawdown advantage. On average the strategy lands below Buy & Hold here. Anyone applying the 200-day line to a single favorite stock should know that.
What it means
The honest summary: the 200-day line is not a return accelerator, it's a drawdown tool. Whether it's worth it depends entirely on the asset:
- On crypto the bear market is so deep that sitting in cash even improves return — the rare case where drawdown protection and excess return coincide.
- On index ETFs you buy calm almost for free — little return given up, a lot of drawdown removed.
- On single stocks you buy whipsaw and pay for it.
This isn't a strategy you "always turn on." It's a regime filter whose value you have to know per asset class.
FAQ
Is this the 200-week line everyone talks about with Bitcoin? No. That's a common mix-up. The 200-week line is a long-term floor indicator (Bitcoin has historically rarely closed below it). The 200-day line here is a much faster trend filter that can flip several times a year.
Does it beat Buy & Hold? On crypto, on average yes, on both return and drawdown. On index ETFs, usually not on return, but strongly on drawdown. On single stocks, usually not. A blanket answer would be dishonest.
Why 200 and not 150 or 250? 200 is the convention Faber popularized and the one most widely watched. In our engine the period is an adjustable parameter (20–400) — if you want to test whether 150 or 250 works better for a given asset, you can. But beware: turning the period until the result looks pretty is overfitting, not research.
Why does sitting in cash help if the market rises long-term? It barely helps in rising markets — which is why the strategy gives up return on ETFs. The value comes purely from deep, long bear markets. The more brutal the asset's drawdown, the more exiting pays. That's why crypto is the sweet spot and a calm equity index is the "insurance" case.
Does the strategy earn interest on cash? Not in this run — cash sits at 0%. In reality, money-market interest would partly close the return gap on ETFs and stocks. That's a deliberately conservative assumption: the strategy looks worse here than it would with interest-bearing cash.
Is this a live signal I can subscribe to?
Right now regime_200d is a backtesting tool, not a live alert. A regime flip is a very good alert candidate, but that's a later stage.
What Backtesting Arena contributes
We turned the 200-day line into regime_200d, a standalone strategy — across all asset classes, including forex, with a single parameter. You can run it yourself against Buy & Hold on the asset of your choice and read the drawdown reduction straight off the Risk-Adjusted Scorecard.
The point of our work isn't to tell you "buy this" — it's to show you the distribution: on which assets does this famous rule beat Buy & Hold, and on which does it cost you? That's a question you can measure instead of believe. That's exactly what we do.