Pollinate Macro ETF Portfolio Strategy

etf market regime strategy systems trading Feb 15, 2021

Over the past year we have been live testing the Monthly Macro ETF Strategy and as we wind up for the year, I want to share the results to date. 

As you know we are systematic traders using quantitative edges to make money trading the markets. Our trading is all about finding predictable, repeatable trades that can be scaled up.

Our main job is to categorize the market regime first, once we have that part figured out we use that info to identify the unique characteristics of these market regimes. 

Regimes happen all the time, intraday, overnight, during the market open, between the open and lunch, market close, as well as on daily, weekly, monthly and yearly basis. 

The higher you move up in time the more powerful, and informative the regime classifications are. For example using the last 100 trading days informs what environment we currently in and how we can apply that to daily swing trades and even/especially intraday daytrading. 

But what really gets me excited about the work we've done this year is building out the Macro ETF Portfolio Strategy. 

There's no doubt that identifying long term trends early isn't easy, because once the long term trend becomes obvious, by definition, the trend has already taken off. This leaves a lot of indecision and anxiety about buying the top. 

We had a few initial requirements building this strategy.

  • Catch long term (multi-year) moves
  • Have opportunities to add to winners
  • Get paid dividends in both winning and losing trades
  • Have a minimum 4:1 reward/risk ratio
  • Cut losing positions earlier than winners
  • Trade a diverse universe of sectors, asset classes and regimes
  • Avoid short-term capital gains taxes
  • Spend as little time as possible managing the system

It took about 6 months of research, trial and error before we dialed in the strategy. By the end of 2019 we had the strategy fully backtested with in-sample and out of sample data.

Here is a quick look at the backtest results:

From 1995-2020 Over 30 different ETF’s (without dividends)

  • 100+ trades
  • 51% win rate
  • Avg Win 8.18r
  • Avg Loss -1.31R
  • Reward/Risk 8:1
  • Profit Factor 6.22
  • Expectancy 3.53
  • SQN(System Quality Number) 4.24
  • Beginning Balance $1,000,000
  • Ending Balance $13,482,336.37
  • Return 1,248%

Then we added in the Dividends 

  • Total Dividends Return $5,592,829.34
  • Average Dividend Return $70,795.31
  • Total Trades Paying Dividends 70/100
  • Combined Returns $19,075,165.71
  • Combined Returns 1808%
  • Combined Average Return $134,823.36

Some additional highlights where we checked those original boxes

  • Average hold time for winners is 901 days
  • Average hold time for losers 388 days
  • Strategy is updated 1x per month, and some months not at all
  • Numerous opportunities to add to positions over 900+ days hold time
  • 70% of trades held on long enough to earn dividends
  • 8:1 reward/risk ratio
  • Expanded universe of assets to over 40 assets in different sectors, commodities, rates, currencies, regions, exchanges and some individual stocks themselves
  • Long term holding periods avoid short term capital gains taxes

By January 2020 we had exceeded our original objectives and have put together a robust, diverse, long term global macro trading strategy to catch the big macro moves. 

Starting January 1, 2020 we went live with the strategy to forward test the strategy in live market conditions. What a year to test, with 2020 bringing us chaos around every corner. 

Interestingly in March only 1 ETF was stopped out of it's long position.

This is the benefit of trading a Universe of about 40 ETF's, when markets are in complete chaos you aren't in just a bunch of FAANGM stocks, basically the same trade. 

Results (so far) for 2020 forward test are:

  • Beginning Balance $1,000,000
  • Current Balance $1,413,958 (without dividends)
  • Profit of 41.39%
  • Total Trades 14
  • 1 losing trade
  • 13 currently long

The Macro ETF Strategy is not built for short term income like many of the other strategies we run here, rather it is built for the long term. 

You can get access to the strategy by signing up here 

Macro ETF Strategy

The strategy is included as part of the Trading Lab. Join a group of fully funded prop traders, other traders trying out for prop firms, traders at Hedge Funds, Family Offices, and other successful traders helping each other MAKE MONEY CONSISTENTLY!

Trading Lab

In addition to the strategy I'll be working on putting together the Monthly Macro Strategy report where I break down the trends that we are in the middle of, which ones might be shaping up to take advantage of from a Systematic Macro approach. 

This will be exclusive to Macro ETF and Trading Lab members.

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