Here is a complete ETF trend system written out so two people reading it would make the same trade. It uses the 200-day moving average on a broad equity ETF, with a Treasury ETF as the place to sit when out of the market. This is a documented example to copy and adapt, not a claim about performance.
The system at a glance
- Universe: one broad U.S. equity ETF, plus one short-term Treasury ETF.
- Signal: the 200-day simple moving average (SMA) of the equity ETF’s closing prices.
- Entry: buy the equity ETF when its monthly close is above the 200-day SMA.
- Exit: sell the equity ETF and move to the Treasury ETF when its monthly close is below the 200-day SMA.
- Position sizing: the full position in one or the other; no partial positions.
- Rebalance: check on the last trading day of each month, at the close.
Rule 1: The universe
Pick one broad, liquid equity ETF that tracks a wide market, and one short-term Treasury ETF as the safe alternative. Using just two funds keeps the system simple and the spreads tight. You could add more assets later, but the example stays deliberately small.
Rule 2: The signal
The only input is the 200-day SMA of the equity ETF’s closing prices. Nothing else matters: no news, no earnings, no forecasts. The line is the decision.
Rule 3: Entry and exit
On the last trading day of each month, look at whether the equity ETF closed above or below its 200-day SMA. If it closed above and you are in the Treasury ETF, switch to the equity ETF at the next available close. If it closed below and you are in the equity ETF, switch to the Treasury ETF at the next available close. If nothing changed, do nothing.
Rule 4: Position sizing
The system is binary: you are either fully in the equity ETF or fully in the Treasury ETF. There is no in-between. This keeps the decision small and mechanical.
Rule 5: The monthly check
The review is a two-line checklist, run once a month:
- Is the equity ETF’s latest monthly close above its 200-day SMA?
- Does my current position match the answer (equity if above, Treasury if below)?
If the answers agree, do nothing. If they disagree, make the single switch. This is the entire system.
Applying the rule in practice
Suppose the monthly close is above the 200-day SMA. The rule says be in the equity ETF. If you are already there, hold. If you were in the Treasury ETF, buy the equity ETF at the next close. The logic is identical in reverse when the close is below the line: be in the Treasury ETF, and switch if you are not already there.
The rule does not predict tops or bottoms. It reacts after a change has begun, which means it will always give back part of a move at each turn. That lag is the trade-off for never having to guess.
What this example leaves out
This is a rule book, not a backtest. It does not include commissions, spreads, dividends, or taxes, and it makes no statement about historical or future returns. Before committing capital, test the rules honestly and validate them on data they have not seen, following the backtesting guide. To adapt the rules to a different signal or a larger universe, start with how to build an ETF trend trading system, and compare signal choices in the signal comparison guide.
FAQ
What is the simplest ETF trend system?
The 200-day rule: hold a broad equity ETF when its price is above its 200-day simple moving average, and move to a bond or cash ETF when it is below. It is the most commonly cited example of a rules-based trend system.
Do I need a second ETF for the safe position?
No. A short-term Treasury ETF is a common place to park capital while out of the market, but plain cash works too. The point is a defined place to be when the equity ETF is below its trend line.
How often should I check the signal?
Monthly is the common default. Checking daily adds noise and trading costs without a clear benefit. The example system checks on the last trading day of each month.
Is the 200-day rule profitable?
There is no guarantee. It is a widely studied example used to illustrate rules-based trend following, not a promise of returns. Treat it as a template to adapt and test, not a proven money-maker.
Disclaimer: Educational content only, not financial advice. This example documents rules; it does not predict or promise returns. Full disclaimer and affiliate disclosure.
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