Whipsaws and losing trades are part of the process for trend-following strategies. These are expenses, and simply unavoidable. Over time, trend-following strategies will catch a few big trends and these profits will more than cover the expenses. Let’s look at signals and backtest results for the Cybersecurity ETF (CIBR). The chart below shows the Cybersecurity ETF (CIBR) with the Percent above MA indicator in the lower window. This indicator measures the percentage difference between the 5 and 200 day SMAs. I use +3% and -3% for signal thresholds to reduce whipsaws. A whipsaw (WS) is a short-lived signal that does not develop into a trend and results in loss. Thus, an uptrend signals with a cross above +3% and remains in force until a cross below -3%. On the chart below, the green lines show uptrend signals since 2020 and red lines show downtrend signals. The blue WS marks the…
