Here is the situation that produces more bad retail decisions than almost anything else. The Macroeconomic Risk Scorecard regime tile says SLOWDOWN. Your account is up eleven percent this year. Every instinct says one of these two things is lying and you should work out which, then act on the winner.
That framing is the mistake. They are not competing answers to one question. They are answers to two different questions, and the whole conflict dissolves once you assign each of them the decisions it is actually competent to make. What follows is the ranking I use, which jobs go to price, which go to macro, and why the split falls where it does.
They disagree by construction, not by accident
Look at what each one is made of and the disagreement stops being mysterious.
The macro read is a composite of seven recession probability models running over more than fifty indicators pulled from FRED, the BLS, the BEA and the ECB. Those are surveys, government statistics and central bank series. Most of them describe a month that has already finished, they arrive weeks after the fact, and they revise for years afterwards. The scorecard currently prints 29 out of 100 with a LOW risk band, a health grade of C at 59, and the phase word SLOWDOWN.
Price is a continuous auction between people betting money on the future. It updates every second, it prices expectations rather than the past, and it is perfectly capable of rising through a period that macro data will later describe as weak, because the market was already positioned for weak and is now finding out it was slightly less weak than feared.
So one of them describes conditions that already happened, slowly and accurately. The other describes expectations about what has not happened yet, instantly and noisily. Asking which is right is like asking whether the thermometer or the forecast is correct. They are both measuring something real and they are measuring different things.
Price governs entries and exits
Entries and exits are timing decisions, and macro data is structurally unable to time anything. It arrives late by design. If you wait for the regime tile to confirm a market that has been falling, you will sell into the bottom half of the decline, and if you wait for it to confirm a recovery you will buy back higher than you sold. That is not a criticism of the module. It is a description of what monthly, revised, backward-looking data can and cannot do.
Concretely, on a twenty thousand dollar account. If your rule is that you trim a position when it closes below its two hundred day moving average and you have a written plan for adding back, that rule keeps running unchanged whatever the regime tile says. A SLOWDOWN reading is not a reason to exit a position that is behaving. A rising market is not a reason to cancel an exit rule you set when you were calm.
The corollary is more important and less popular. A deteriorating macro read is not permission to sell everything, and I include the version where you tell yourself you are only stepping aside for a bit. If a macro reading has never been part of your written exit rules, it should not become one on the day it starts to worry you, because at that point what you are acting on is the worry, not the reading.
Macro governs size, leverage and the cash buffer
Here is where the scorecard earns its place, and it is a genuinely different set of decisions from the timing ones.
How much you own, how much of it is borrowed, and how much cash sits outside the account are not timing questions. They are questions about how much damage a bad outcome could do to you, and macro conditions are exactly the right input for that, because they tell you something about the environment's capacity to produce a bad outcome rather than about when.
Three specific things a deteriorating regime read should change, none of which involve calling a top.
- Leverage stops going up. If you carry margin or perps, the notional does not increase while the macro read is deteriorating. This is free, it is reversible on any day, and it is the item that most often decides whether a drawdown is painful or account-ending.
- Position sizes get capped rather than cut. Existing positions stay if they are behaving. New positions come in at a smaller size than you would use in a benign environment. On a twenty thousand dollar account, that is the difference between a new idea entering at fifteen hundred dollars and entering at eight hundred.
- The cash buffer gets rebuilt first. Three to six months of actual spending, held outside the trading account. Its value has nothing to do with whether the macro call is right, and everything to do with whether a bad quarter forces you to sell at a price you did not choose.
Notice that all three are compatible with staying fully invested in a rising market. That is the point of splitting the jobs this way. You do not have to choose between participating in the trend and respecting the macro read, because they are not asking you for the same thing.
The one case where the ranking flips
There is a situation where price should not govern the exit, and it is worth naming precisely so you do not use it as a general excuse.
Price-based exits assume you can get out at a price near where your rule triggers. That assumption holds in liquid markets on ordinary days and fails in exactly two circumstances. When a market gaps, so your stop fills far below where you set it. And when you are holding something illiquid enough that the exit itself moves the price, which for retail accounts usually means small-cap tokens rather than anything on a major index.
In those cases the trend-following exit is not really available to you, so the risk has to be managed at the size decision instead, which is the macro-governed side of the split. That is the argument for reducing an illiquid or leveraged position on a deteriorating macro read even though it is still behaving. Not because macro times better, it does not, but because the exit you were relying on may not exist when you need it.
The version of this that goes badly
The failure mode is not choosing the wrong signal. It is switching between them based on which one currently agrees with what you wanted to do. Market rising and macro poor, so you follow the trend. Market falling and macro poor, so you cite the macro. Market falling and macro fine, so you go back to the trend as a buying opportunity. Every individual decision sounds reasonable and the sequence is just your mood with a data source attached.
The protection is to write the split down before the next conflict, in about four lines. Entries and exits follow these price rules. Size, leverage and cash follow the macro read, with these specific thresholds. Illiquid and leveraged positions are the exception and they get cut on the macro read. Overrides are allowed and get written down with the date and the reason on the day you take them.
That last line is the one that does the work, because you will override it, everybody does. The difference between a process and a habit is whether you can look back in a year and see what you actually did and why, which is the only way you will ever find out whether the macro read was helping you or just giving your nerves somewhere respectable to point.