Can You Beat the Market with Just One Rule?
Can a single trading rule really beat the market? It sounds too simple to be true, but our backtests suggest otherwise.
In this article, we explore whether one straightforward rule can outperform buy-and-hold investing, both in stocks and in crypto. We tested this on two very different assets: the S&P 500 and Bitcoin.
One Simple Rule for the S&P 500
For our stock market test, we focused on the S&P 500 index from 1993 until today:
Buy and hold 100% of the equity, and apply 10% extra leverage when the 50-day moving average crosses above the 200-day moving average (the Golden Cross). Exit that leveraged position when the moving average crosses below (the Death Cross).
In other words, you’re always in the market with full exposure, but you add a small amount of leverage when the trend is bullish, as defined by a popular long-term momentum signal: the Golden Cross.
Why does this work?
The Golden Cross helps filter out long-term downtrends, often keeping you out of bear markets. While it doesn’t predict crashes perfectly, it does help you reduce exposure in weak periods and increase exposure in strong ones—with just one rule.
Results:
Using this single rule, our backtest showed that the strategy outperformed buy-and-hold by 0.2% annually—without adding extra risk. The max drawdown and volatility remained nearly identical.
One Simple Rule for Bitcoin
Bitcoin is a very different asset: volatile, fast-moving, and speculative. Buy-and-hold returns have been massive, but so have the drawdowns.
To adapt, we used a shorter-term momentum rule:
- Buy when the close crosses above the 20-day exponential moving average.
- Sell when it crosses below.
This rule keeps us out during downturns and gets us back in when momentum turns bullish. Unlike in stocks, you are not always in the market—this strategy was only invested 56% of the time.
Results:
Despite being invested just over half the time, this strategy returned an astonishing 79% annually, compared to buy-and-hold’s 66%. The rule helped avoid some of the biggest drawdowns, improving both return and risk-adjusted performance.
However, most of the returns were before 2020.
So, Can You Beat the Market with Just One Rule?
In both cases, yes—at least historically.
- In stocks, a small tactical use of leverage when the trend is positive helped beat buy-and-hold.
- In Bitcoin, a simple momentum rule avoided sharp drawdowns and captured much of the upside.
These results don’t rely on complex models or machine learning. They come from simple, logical trend-following rules.
Final Thoughts
Markets are hard to beat. But simplicity shouldn’t be underestimated. A single rule, when grounded in sound principles like trend and momentum, can provide a significant edge.
Whether you’re a long-term investor or an active trader, there’s value in testing basic ideas. Sometimes, less is more.