The YMI Long-Term Investment Strategy: MACD + Discount Analysis for Patient Investors

Most people find Young Money Investments through trading content — futures bots, prop firms, NinjaTrader strategies. But one of the strategies in the YMI library has nothing to do with day trading. The YMI Long-Term Strategy is for patient investors who want to build positions in quality assets when the data says they're meaningfully discounted, then hold until fair value — without the noise of intraday charts.

The strategy combines two complementary signals: MACD-based momentum analysis to identify when selling pressure is exhausting, and a proprietary discount score to confirm the price level represents genuine value rather than value that keeps falling. Together, they answer the classic investor problem: how do you know when an asset that's falling has truly found a bottom worth buying?

The Problem the Strategy Solves

The most common mistake in long-term investing is buying "cheap" assets that keep getting cheaper. An asset at $50 that was $100 six months ago looks like a 50% discount — but if its fundamentals deteriorated alongside the price, there's no reason for reversion. Discount buying without quality analysis is how investors catch falling knives for years.

The reverse problem is just as common: waiting too long after an asset has already recovered. By the time the chart "looks" healthy again, the best entry window has passed. Most of the return in a recovery comes from the early period when uncertainty is highest and prices are lowest.

The YMI Long-Term Strategy addresses both problems through two parallel analyses that must agree before a position is taken:

1. MACD analysis identifies when momentum is shifting — when sellers are exhausting and buyers are beginning to absorb supply.
2. Discount score analysis confirms the asset is genuinely undervalued — not just cheaper than last month, but cheaper than its statistical range of fair value estimates.

Component 1: MACD Momentum Analysis

MACD (Moving Average Convergence Divergence) is one of the oldest technical indicators, but the YMI approach uses it differently from most traders. Rather than using raw MACD crossovers — which generate excessive false signals in trending markets — the strategy focuses specifically on MACD divergence as a signal of momentum exhaustion.

Bullish MACD divergence occurs when price makes a lower low but MACD makes a higher low. This means: the selling continues on price charts, but the acceleration of selling is decelerating. The market is still going down, but with less force. This is one of the most reliable leading signals of trend reversal in long-timeframe analysis.

Parameters for the YMI Long-Term version:

• MACD settings: Standard 12/26/9. These aren't optimized — they're the most widely-used settings, which means the signals they generate are being observed by the maximum number of market participants simultaneously.
• Timeframe: Weekly chart minimum. Daily MACD divergences are too noisy — weekly divergences represent multi-week to multi-month momentum shifts and are far more reliable for long-term entries.
• Signal requirement: Two or more consecutive weeks of divergence (price lower, MACD higher) before the entry is considered. Single-candle divergences are often noise; sustained divergence over multiple weeks is structurally significant.
• Histogram confirmation: The MACD histogram (the bars) should be contracting — getting smaller bar by bar — not expanding. Contracting histogram = decelerating momentum. An expanding histogram means selling pressure is still accelerating, regardless of divergence.

Component 2: Discount Score Analysis

The discount score answers whether the asset is currently cheap relative to its statistical range of fair value. This is the fundamental difference between "the price fell" and "the price is cheap."

The YMI discount score synthesizes multiple valuation inputs into a single normalized metric:

For Equity Indexes and ETFs

• P/E ratio percentile: Current P/E compared to its 10-year rolling distribution. A P/E at the 20th percentile of its historical range = 80% of the time it was more expensive = genuinely cheap.
• Price vs. 200-week moving average deviation: Expressed as a percentage. Historical data shows that recoveries in quality broad-market indexes consistently occur from -20% to -35% below the 200-week moving average. Entries in this zone have dramatically better 3-year forward returns than entries at or above the 200-week average.
• Earnings yield vs. 10-year Treasury: The equity risk premium. When stocks yield significantly more in earnings per dollar than 10-year Treasuries, money historically rotates into equities. When this gap compresses, equities are relatively expensive.

For Individual Futures Markets

• Price vs. historical volatility percentile: Where is price relative to its 3-year range, adjusted for volatility?
• Futures curve structure: Is the market in contango (futures priced above spot — typically bearish for commodities) or backwardation (futures below spot — typically bullish)? Significant backwardation in commodities is a structural discount signal.
• Commitment of Traders (COT) positioning: When commercial hedgers (the "smart money" in commodity markets) are extremely long and speculators are extremely short, historical returns over the next 6–12 months have been strongly positive. Extreme COT readings contribute to the discount score.

The composite discount score is normalized to a 0–100 scale. The YMI strategy requires a score of 65+ before considering a long-term entry. Scores below 65 mean the asset may have MACD divergence but isn't genuinely cheap enough to justify a high-conviction multi-month hold.

The Combined Entry Signal

A valid YMI Long-Term Strategy entry requires all of the following simultaneously:

1. Weekly MACD bullish divergence active (price lower low, MACD higher low, for 2+ weeks)
2. MACD histogram contracting (not expanding)
3. Discount score of 65 or higher
4. No fundamental deterioration signal (e.g., for equity ETFs, no earnings recession signal; for commodities, no demand destruction signal)

When all four conditions align, the entry is taken in thirds over three consecutive weeks — not all at once. This removes single-week timing risk. If the first entry is wrong, the second and third entries average into a better cost basis. If the setup immediately resolves higher, the first third captures most of the early recovery.

Exit Methodology

Long-term positions require a different exit framework than day trades. There are no intraday stop losses. The position is monitored weekly, not daily.

Target exit (partial): Take 33% of the position off when MACD turns positive on the weekly chart (MACD line crossing above signal line from below). This locks in early profits while keeping exposure for the full recovery.

Target exit (second tranche): Take another 33% off when price recovers to its 52-week moving average. This is typically the mid-point of a recovery where momentum traders begin buying.

Target exit (final tranche): Close remaining position when the discount score falls below 40 — signaling fair value or overvalue. This might be 6 months or 3 years depending on the recovery timeline.

Stop loss (for position management): Not a hard stop — but if price makes a new 52-week low after entry AND the discount score drops below 55 (meaning the asset is getting cheaper but also genuinely less valuable), reassess the fundamental thesis. This is not automatic — it requires human judgment about whether the decline is temporary or reflects deteriorating underlying value.

Historical Context: When This Strategy Has Worked

The MACD + discount analysis framework has provided high-quality entry signals in major market recoveries:

• March 2020 (COVID crash): S&P 500 weekly MACD divergence + discount score at 88 by late March 2020. Entries in this window returned 60%+ in the following 12 months.
• October 2022 (Fed hiking cycle bottom): Weekly MACD divergence + discount score 72. Entries in Q4 2022 saw 30%+ returns in the following year.
• Crude oil 2020 (WTI) and 2023: COT positioning extremes + MACD divergence + backwardation in the futures curve provided high-quality long entries before significant recoveries.

Important: this strategy is not designed to catch the exact bottom. It's designed to enter in the lower third of a recovery with a high probability of positive returns over a 6–18 month hold. Missing the absolute low by 10–15% is expected and acceptable.

Who This Strategy Is For

The YMI Long-Term Strategy is appropriate for:

• Investors who want systematic, emotionless entries during market corrections
• Day traders who want to build a separate longer-term portfolio alongside their active trading
• YMI members who have prop firm income from bots but want to deploy it into longer-term positions systematically
• Anyone tired of buying at the top and selling at the bottom due to emotional decision-making

It requires checking a weekly chart once per week — roughly 15 minutes of attention. No bots, no intraday monitoring, no complex execution. It's the simplest strategy in the YMI library by design.

Related reading:

• Scaling Up and Compounding Profits — How to systematically grow capital from trading income into long-term positions
• Market Regimes — Regime classification applies to long-term entries too
• Building a Winning Trading Plan — How to incorporate both active and long-term strategies into one framework
• Consistency Is King — Why systematic execution beats discretionary timing
• YMI VIP Tier — Access AI prediction models and stock scanner tools that complement the Long-Term Strategy