The Global Macro Trader and the Use of Macroeconomics
In case you couldn't tell from the title, macro traders use economics a lot in their search for the best opportunities across the globe. The macro trader trades stocks, bonds, commodities, and currencies. Not only do they trade all four major asset classes but they trade them across the globe. That means that they need to follow at least the G-20 nations. This obviously multiplies the number of markets that they must have a solid grasp of.
So if the global macro trader focuses on all of these asset classes and countries what does he or she need to know? Not only do you need to know individual market dynamics but you must understand each nations macroeconomic situation.
Possibly the best example of a country where you need to understand the economic situation is that of Japan. Their stock market is essentially flat from 1982 all the way to 2009. During that time it has gone up ten times and then fallen back and then climbed and fallen again and again. This was not a random occurrence and if you understood the economic dynamics at play it would have made sense to you. Essentially once their bubble burst in the early nineties they entered a period of stagflation and occasionally deflation and they have not had asset growth for thirty years.
Obviously if you had decided to invest in Japan without understanding the macroeconomics at play you would have lost a lot of money. In fact without understanding the economics and practicing risk management you would have made no money at all from 1982 all the way to 2009. Yeah stocks for the long run works except when it does not.
Another trade where you could have made a lot of money was in commodities, commodity currencies, and commodity stocks from 2002 to mid 2008. Not only were we coming out of the dot com bust but were also amazingly underinvested in our global natural resources.
If you had been following the global economic environment you would have been able to spot this trend and would have been able to get on board for one of the best trades in the last twenty years. You likely would have bought countries like Brazil and other emerging markets.
Value investors and supposed pure stock pickers are notorious for claiming to not need economics. We only buy stocks they say. Well the truth is that all stocks are part of and are affected by the economy. You can lose fifty percent of your money when a supposed surprise economic disaster happens or look at the signs, see it coming, and profit.
Global macro trading and macro economics obviously are very complimentary to your account when used properly. Don't trade in ignorance. You should instead learn everything you can and set up the best risk to reward scenarios possible. - 23208
So if the global macro trader focuses on all of these asset classes and countries what does he or she need to know? Not only do you need to know individual market dynamics but you must understand each nations macroeconomic situation.
Possibly the best example of a country where you need to understand the economic situation is that of Japan. Their stock market is essentially flat from 1982 all the way to 2009. During that time it has gone up ten times and then fallen back and then climbed and fallen again and again. This was not a random occurrence and if you understood the economic dynamics at play it would have made sense to you. Essentially once their bubble burst in the early nineties they entered a period of stagflation and occasionally deflation and they have not had asset growth for thirty years.
Obviously if you had decided to invest in Japan without understanding the macroeconomics at play you would have lost a lot of money. In fact without understanding the economics and practicing risk management you would have made no money at all from 1982 all the way to 2009. Yeah stocks for the long run works except when it does not.
Another trade where you could have made a lot of money was in commodities, commodity currencies, and commodity stocks from 2002 to mid 2008. Not only were we coming out of the dot com bust but were also amazingly underinvested in our global natural resources.
If you had been following the global economic environment you would have been able to spot this trend and would have been able to get on board for one of the best trades in the last twenty years. You likely would have bought countries like Brazil and other emerging markets.
Value investors and supposed pure stock pickers are notorious for claiming to not need economics. We only buy stocks they say. Well the truth is that all stocks are part of and are affected by the economy. You can lose fifty percent of your money when a supposed surprise economic disaster happens or look at the signs, see it coming, and profit.
Global macro trading and macro economics obviously are very complimentary to your account when used properly. Don't trade in ignorance. You should instead learn everything you can and set up the best risk to reward scenarios possible. - 23208
About the Author:
If you need actionable trading ideas then check out The Macro Trader It is a weekly global macro research advisory publication with frequent intra-week updates for time-critical analysis and actionable trading ideas.
posted by X - Men @ 1:23 AM
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