Often time global macro trading firms will be accused of being nothing but a commodity trading advisor with a different name. While there are a few similarities the truth is that nothing could be farther from the truth. Commodity trading advisors are almost exclusively systematic technical traders. This means that they use charts and automatic entry exit signals to buy sell and sell short. In fact the primary edge in most of these firms is their risk management algorithms and not their knowledge of why it happened.
Macro trading is similar to commodity trading advisors because most of them also are heavy users of technical analysis. Technical analysis is the study of price and volume.
As opposed to most commodity trading advisors global macro trading funds also use a heavy dose of fundamental analysis to ensure that the market really should go their way. They still use technical analysis but they combine it with sentiment and fundamental analysis.
Possibly the most famous example of blending fundamentals and technical analysis into a trade was in 1992 when George Soros and Stanley Druckenmiller broke the bank of England in a matter of speaking. The bank is fine but they traded against the bank and won big to the tune of a billion dollars in two days.
The bank of England was reluctant to raise their interest rates along with the rest of Europe or to float its currency. The economic situation essentially said that England had to do one of those two things or they would have to devalue the pound.
Eventually the bank was forced to devalue the currency and in two days time the Soros funds were able to bring in more than a billion dollars. This was not a bad trade for a few days work.
Trading this way is what global macro trading is all about. Line up the fundamentals, the technical's, and the market sentiment and then you can gauge the upside and the downside and position yourself accordingly.
Trading is hard enough as it is you do not need to make it even harder by fighting the underlying market moving factors. Learn and use all forms of analysis so that you can be a better global macro trader.
Macro trading is similar to commodity trading advisors because most of them also are heavy users of technical analysis. Technical analysis is the study of price and volume.
As opposed to most commodity trading advisors global macro trading funds also use a heavy dose of fundamental analysis to ensure that the market really should go their way. They still use technical analysis but they combine it with sentiment and fundamental analysis.
Possibly the most famous example of blending fundamentals and technical analysis into a trade was in 1992 when George Soros and Stanley Druckenmiller broke the bank of England in a matter of speaking. The bank is fine but they traded against the bank and won big to the tune of a billion dollars in two days.
The bank of England was reluctant to raise their interest rates along with the rest of Europe or to float its currency. The economic situation essentially said that England had to do one of those two things or they would have to devalue the pound.
Eventually the bank was forced to devalue the currency and in two days time the Soros funds were able to bring in more than a billion dollars. This was not a bad trade for a few days work.
Trading this way is what global macro trading is all about. Line up the fundamentals, the technical's, and the market sentiment and then you can gauge the upside and the downside and position yourself accordingly.
Trading is hard enough as it is you do not need to make it even harder by fighting the underlying market moving factors. Learn and use all forms of analysis so that you can be a better global macro trader.
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