Whipsawing

Whipsawing occurs when the underlying asset increases enough to trigger rebalancing. After more shares are added, the underlying asset decreases in value and the additional shares are sold at a lower price than what was paid for them. A common remedy for this problem is to use a larger adjustment gap or filter rule; however, the wrong number of shares would be held if the filter rule were increases, particularly if the stock moved in a linear manner. Whipsawed positions commonly occurs when the asset fluctuates around a constant level.