The Main Edge To The Macro ETF StrategyFeb 15, 2021
In yesterday's email I introduced you to the Pollinate Macro ETF Strategy, showing the results of our 25 year backtest and 1 year forward test. The summary is here if you want to have a look.
Today I'm going to talk about one of the biggest edges that the Macro ETF Strategy was built on.
Recency bias is a cognitive bias that favors recent events over historic ones. A memory bias, recency bias gives "greater importance to the most recent event", such as the final lawyer's closing argument a jury hears before being dismissed to deliberate.
Or a better way for our purposes, a market that has just been going sideways for years failing to breakout time and time again.
How many times have you been sucked in to a breakout setup only to watch it turn around just as you jump in, and stop you out?
After a couple of attempts and stop outs, you just walk away. Only to come back and look at it again a few weeks later, ripping higher.
Here's an example of $EURUSD
There were at least 11 attempts to breakout higher or lower, only to trade in the obvious downward trading range.
But here's the other painful truth, it doesn't become obvious until towards the end of the downward range, that you are really become sure that it is an obvious down trend.
Juuuuust about the time that it reverses.
What about catching a really good trend and selling too early. Let's look at $XLI the Industrials ETF. There was a great breakout in 2013 that moved from $39 to $57 before settling at around the $54 level.
Then it proceeds to rip to over $80
That's a 100%+ move instead of a 38% move, if you just sat in the position instead of getting antsy and scared of losing all your profits.
These are two of the biggest issues that traders/investors have.
1- Getting in to trends that are actually trends and not failed breakouts
2- Staying in trends as long as possible
Back to recency bias.
When you look left on your charts it's easy to get caught up in what has just happened, letting that interfere with what you should be focused on, what is happening now.
For example If you bought the February 2009 lows, if you were looking at the chart to your left on $QQQ you would've been tempted to sell quickly.
Imagine owning $QQQ from $29 and seeing it shoot back up to $50, given everything on this chart, you would have sold the top of the trading range and felt like you caught the deal of the century!
But imagine if you had a strategy that kept you in these long term trending trades, for years!
From the 2009 lows at $29 to todays price $308, that's over 900%
Look I'm not saying that the Pollinate Macro ETF Strategy will do that either, but I will say, the average winning trade stays in positions well over 3.5 years, and losing trades exit around 1.5 years.
We exploit the recency bias by having a well backtested, forward testing and constructed strategy that identifies long term trends and stays in those long term trends longer than most people would.
And when we are wrong or simply waiting as an ETF takes a breather, we still get paid the dividends as all ETF's are dividend paying, so you aren't sitting in dead money.
2020 YTD Returns
- SPX 13.36%
- Monthly Macro ETF 41.96% (without accounting for dividends)
While everyone was staring blindly into the abyss of CoVid19 the Macro ETF Strategy was sticking to the rules, and making moves to get long.
- A bunch of people have been asking me how to get a copy of the strategy, so let me go over that.
- The Monthly Macro ETF Strategy will be updated at the beginning of each month.
- You will receive an email exclusive to ETF Subscribers and Lab Members, no one else will receive these emails.
- There will be a place on pollinatetrading.com for you to access the reports.
- As a Lab Member you will get this as part of your membership. Lab Membership isn't required.
You can learn more about the lab here
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