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2004issue C091-3

Full-window evaluation of crossover trend systems

Treat a moving-average crossover as one trend-following procedure by scoring in-market intervals and cash intervals inside the same test window, so the comparison is not limited to the years the rules held a position.

  • Evaluate a moving-average crossover as trend following only when in-market intervals and cash intervals stay inside the same test window.
  • Scoring a crossover only over the years it held positions can overstate improvement versus a continuously invested benchmark.
  • The abstention rule is part of the procedure under test, not an adjustment applied after the backtest is finished.
  • Once cash years were counted at a zero return, the full-window result of the crossover matched the always-invested alternative.
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Trend following89 readingsCurrent trackMoving-average crossover108 readings

Score the whole procedure

A moving-average crossover is a signal rule that changes exposure when a shorter average of price crosses a longer average. Trend following is a single testable procedure that enters, holds, or stands aside from a market condition over the system holding period.

A moving-average crossover should be evaluated as a trend-following procedure only when both in-market and out-of-market intervals stay inside the same test window. The in-market interval is the part of a test window during which the rules keep a position open. The cash interval is the part of a test window during which the rules hold no market position.

Why a partial window can overstate improvement

Scoring a crossover only over the years it held positions can overstate improvement versus a continuously invested benchmark. A continuously invested benchmark is a comparison series that remains fully allocated for the entire sample.

The crossover's abstention rule is part of the procedure under test, not an adjustment applied after the backtest is finished.

A full-window comparison

In an 84-year comparison of a simple moving-average crossover with a continuously invested alternative, the crossover was in the market for 49.8 years and held cash for 34.2 years. Once those cash years were counted at a zero return, the full-window result of the crossover matched the always-invested alternative.

Interest on idle cash

Treating idle cash as able to earn a short-term interest return changes the evaluation, but only after interest-rate variation and transaction costs are considered.

Crossover yield versus buy-and-hold on the full 84-year window

The 9.33 percent crossover yield covers only the 49.8 years the rules were invested. Once the remaining 34.2 cash years at a zero return sit on the same 84-year ledger, the procedure matches buy-and-hold near 5.5 percent. These figures are the ones Jeffery Cohen quoted from Matt Blackman's July 2004 Dow Jones Industrial Average study and then restated for the full window.
The 9.33 percent crossover yield covers only the 49.8 years the rules were invested. Once the remaining 34.2 cash years at a zero return sit on the same 84-year ledger, the procedure matches buy-and-hold near 5.5 percent. These figures are the ones Jeffery Cohen quoted from Matt Blackman's July 2004 Dow Jones Industrial Average study and then restated for the full window.Dow Jones Industrial Average · 84-year window cited in the letter

Idle cash is scored at a zero yield, which is the letter's baseline before any Treasury or savings interest. The 5.5 percent full-window pair is Cohen's rounded restatement of that same 84-year stretch.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
31 of 57 in the Moving-average crossover track
20041-4 pp.Next on Moving-average crossoverTwo-average trend filters as a classroom critique of indicator stackingA daily-chart trend filter can be assembled from a five-period exponential average and a 20-period simple average, then gated by whether price sits below or above both lines.
All readings on this track · 57 readings
  1. 1988Constructing moving averages: weights, smoothing and crossovers
  2. 1988Constructing breadth and average trend states
  3. 1989Evaluating an always-in-the-market moving-average crossover
  4. 1989Constructing symmetric market-breadth ratio accumulators
  5. 1989Objective crossover tests of Fibonacci wave ratios
  6. 1990Volume-adjusted moving average construction
  7. 1991Constructing a mechanical crossover on a synthetic price series
  8. 1991A two-speed breadth reading for intermediate market direction
  9. 1992A Deutschemark yield map with dual-average and relative-strength timing
  10. 1992Confirming currency-fund trends with a crossover and a filter
  11. 1992A moving-average slope filter for crossover signals
  12. 1992Occupancy and split-sample tests for average crossovers
  13. 1994Gold-mining seasonality and bond-fund duration switching
  14. 1994Price oscillator from two moving averages
  15. 1995Explicit exponential weights and binary entry filters
  16. 1996Currency futures crossover with slope, bond filter, and stop
  17. 1996Two-market average crossover entry with a fixed stop
  18. 1997Construction of a filtered three-average crossover
  19. 1998Two-group exponential average compression as a trend filter
  20. 1998Constructing r-squared trend filters with dual lookbacks
  21. 1998Moving-average length is a habit, not a secret
  22. 1999Solving the close that triggers a moving-average crossover
  23. 2000Kagi yang and yin control versus crossover noise
  24. 2000Constructing simple moving average crossover filters
  25. 2000Building a vertical-horizontal filter to gate trend signals
  26. 2000Two-average crossover as a check on trend following
  27. 2003Stacked exponential-average retracement entries and extreme stops
  28. 2003Evaluating oscillator thresholds against optimized crossovers
  29. 2004Constructing a semicycle trend-quality filter
  30. 2004Commodity subgroups labeled by crossover, support, or convergence
  31. 2004Full-window evaluation of crossover trend systems
  32. 2004Two-average trend filters as a classroom critique of indicator stacking
  33. 2005Three-layer confirmation from a moving-average cross, candles, and Q-stick
  34. 2005Charting put prices beside an equity breakdown
  35. 2005Range-gated moving-average crossover construction
  36. 2007Anticipating a simple-average crossover with a threshold-close
  37. 2007Anticipating moving-average crossovers one bar ahead
  38. 2007Lead-series moving-average crossovers with a stochastic and relative strength index
  39. 2007Next-bar SMA crossover hypotheses from theoretical crossing values
  40. 2007Anticipating a moving-average crossover before confirmation
  41. 2007A three-horizon moving-average stack as a construction problem
  42. 2007Confirming trend with regression slope and r-squared
  43. 2008Constructing a multi-timeframe smoothed crossover
  44. 2008Best-day clusters versus trend filters
  45. 2008Allied markets as a confirmation gate for crossover and breakout signals
  46. 2008Weekly exponential-average crossover as a mechanical trend case study
  47. 2010Evaluating a 200-day crossover as long, short, and stand-aside rules
  48. 2010Read a 10-and-40 trend on two neighboring time frames
  49. 2012Sampling unit as a first-class parameter on dual simple moving averages
  50. 2012Constructing index-ETF entries from volatility-index persistence
  51. 2013Moving-average baselines versus crossover signals
  52. 2013Constructing a typical-price and heikin-ashi crossover as one mechanical procedure
  53. 2016A three-gate checklist for longs after a sharp drop
  54. 2016Weekly inflation-ratio crossover for commodity regimes
  55. 2017Normalized Laguerre zero-axis warning as a two-marker construction
  56. 2019Range-weighted construction of an adaptive exponential moving average
  57. 2020Construct a second-pullback entry after a moving-average crossover
By fieldTrend and mean reversion93 readingsBy year2004107 readings
All 108 readings tagged Moving-average crossover
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