Financial News Hub

Global macro trading can be lumped into two main camps. Relative value and directional. Relative value trades asset classes against each other when their historical relationships are out of whack. Directional trading is when you place a trade because you feel the underlying asset is going to make a big move and you already think you know the direction.

Directional trading comes in several different styles. Some traders do their fundamental work and then buy or short based solely upon what they think the asset will do. Others trade purely on gut feel. And yet others trade technically looking at charts. Another large class of so-called global macro traders use automatic trading systems. And then finally we have the people that try and incorporate all the different types into one.

Traders that only use fundamental analysis typically hold positions for long periods of time and feel that their edge is in their valuation skills. When they are right they can do very well but at times they are worng and have large drawdowns.

Trading from the seat of your pants is typically a bad way to go about trading. That being said if you are good at risk management it can be one way to trade. If you like watching fed announcements and trading off of them then good luck. It doesn’t work for most that try it.

Some people call it voodoo and others call it the road to riches. Technical analysis is the art of the chart. Technicians focus on price action and other fully quantifiable factors. Based on this they are able to make decisions as to where they feel that things are going.

CTA trend followers are the largest group of automatic traders. They are 90% of the managed futures industry and like technicians they use price action. As opposed to most however their system is truly automatic and along with a risk management algorithm they trade in futures markets across the globe.

Traders who use the best of all these forms of trading typically will have better long term results and lower drawdowns. If you use good risk management along with a measure of what the market is telling you, and then couple that with the fundamentals of the actual market you are bound to have better long term results.

No related posts.