With this simple strategy, you always beat the market!

Last Updated: 20. November 2023By

Don’t think fund managers know best. Maybe they have learned more about markets and exchanges. But in the end there is a very simple strategy with which you can beat the market every year.

This was claimed by a Youtube video that I stumbled upon over the weekend. So let’s take a closer look at this theory. Only the EMA 10 and EMA 20 are used here as indicators – that is the exponential averages. Particularly noteworthy: Not on a daily basis, but on a weekly basis.

You can already see that you don’t have to be too active with this strategy if we move in the weekly chart as a time frame.

DAX in the weekly chart The green line is the EMA 10. You can see the EMA 20 in red. With the mentioned strategy it is now a matter of leaving the market when the green crosses the red line from top to bottom. In our DAX excerpt we would therefore have been uninvested for 284 days.

(Source: Tradingview.com)

When the prices began to turn downward in early 2022, the strategy gave us a signal. There we would have taken the profits and turned our backs on the DAX. We would have been spared the subsequent valley. In this respect, the strategy definitely wins at this point.

One should get back into the market when the signal is reversed. If the green line crosses the red one upwards. In the middle of the screenshot you can see a green mark. That would have been the signal to enter the DAX.

Afterwards the prices rose by more than 2,000 points. That wasn’t wrong either. Although somewhat late one could say. But that is generally the problem after a major sell-off. Then the question always arises: When can I buy again?

Especially after the Corona crash, but also at the end of 2022 the recovery was very rapid. So it is quite normal that we leave some points behind if we follow this strategy. But it’s always about the long term. It’s just better not to have money in the market during a correction. And that’s what the strategy can do.

In October 2023 we had another red signal, so out of the market. Currently the prices are already creating a green signal again. So a small dip down like last time is apparently poison for this strategy. Because we would have sold at 15,400 points and would now only re-enter if the prices were at around 16,000.

Fortunately, such a roller coaster ride, as we have experienced in recent weeks, is very rare. So the strategy can be successful in the long run.

Success with the EMA 10/20 crossover strategy We can perform significantly better than the market with this simple strategy alone. Biggest advantage: The drawdown is significantly reduced. That is the maximum drop. A DAX ETF had a drawdown of 40 percent with the Corona crash.

With the EMA 10/20 crossover strategy, this would have been only half as much. So if you like it a little less risky, you can orient yourself to it. But you also have to bear that you enter the market much later than the low. At below 8,000 points, the low in the DAX was at the Corona crash. The strategy would not have delivered a buy signal until over 12,000 points!

If we then leverage the positive sections, we can certainly get a lot out of it. Apart from the fact that the Corona crash and its V-recovery was virtually unique.

For a crash, like the financial crisis 2007-2009, the strategy was perfect: Exit at the beginning of 2008 at 6,780 points. We would have entered in May 2009 at 4,800 points.

Of course, the whole system can also be used in both directions for particularly sporting traders. Instead of simply pulling the money out of the market, you can also bet on falling prices in this time. But here too you need a quiet market. Volatile exchange costs money with this strategy.