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Using margin debt as a trend-following indicator

Jay Kaeppel
2026-10-21
The trend of NYSE Margin Debt can serve as a useful trend-following indicator. In this piece, we present the details of a straightforward approach to using this data series to assess the likelihood of a bull market.

NOTE: I am away for two weeks. In the interim, I have chosen to republish some older notes. The topics are either relevant again to current market conditions or educational in nature regarding an indicator or system I have found useful in the past.

The note below was first published in October of 2021.


Investors who hold margin accounts can borrow money to increase the leverage of their stock holdings. As a result, NYSE Margin Debt provides a useful measure of the amount of speculative fervor among investors at any given point in time. 

In general:

  • When margin debt is rising, it suggests investors are bullish and willing to push their bets using leverage
  • When margin debt is falling, it suggests investors are bearish and are actively reducing their exposure to risk

Margin debt can reach extreme levels and serve as a warning sign of potential intermediate-term trouble (as Jason has written about here and here). We will focus solely on using the NYSE Margin Debt indicator as a trend-following tool for this article.

NYSE MARGIN DEBT VERSUS ITS 12-MONTH MOVING AVERAGE

We use the latest data available for NYSE margin debt at the end of each month for testing. We then c

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Risk Disclosure: The information and tools provided are for research and analytical purposes only and are not intended as investment advice. Market analysis involves uncertainty, and outcomes may differ from expectations. Users should conduct their own due diligence and consider their individual circumstances before making any financial decisions. Past performance is not necessarily indicative of future results.

Hypothetical Performance Disclosure: Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown; in fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk of actual trading. for example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all which can adversely affect trading results.

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