Global Macro Trading The Investment Strategy For Every Season
Topics: macro trading, global macro, macro investing, macro trader, stocks, bonds, currencies, commodities
While we are biased we feel that most investors would benefit by incorporating at least some of the principles of global macro into their own trading. Global macro is the least inhibited of the popular trading styles. Most global macro funds trade almost anything almost anywhere. What we mean is that instead of sticking to only US Stocks or US Bonds we are able to, and are actually almost required to look at other asset classes and other countries. By casting a wider net we are better able to find favorable risk to reward trades and investments.
For instance many investors will focus on one asset class in one country. If you had implemented a typical buy and hold strategy in order to expose yourself to stocks in the Untied States you would have made absolutely nothing over the past ten years. In fact after inflation you would have lost money. Global macro on the other hand allows you to leave overpriced markets and go where you can find better values and positive momentum.
Global macro investors will typically look at global stock markets, global bond markets, currency markets, commodities, and even real estate. In addition to all of these they will also incorporate strategies such as volatility trading and typical trend following CTA models. By doing this there truly is always a bull market somewhere. If you think that the US stock market is overvalued then you are able to look at other stock markets that may be undervalued. If you think that global stock markets are overvalued then you can go to bonds. When the environment is right you can take advantage of the carry trade in the currency markets. If the emerging markets are in an expansion mode you can take a larger position in commodities. The list is endless. Essentially you can go everywhere and do anything as long as it meets your risk to reward criteria.
Most successful investors would agree that finding the best risk to reward scenarios is one of the most important aspects of long term trading success. Knowing that most investors still go out and buy stocks at any valuation day after day. Why do they do this? Well one reason is due to investor psychology but another reason, and probably the biggest reason is that they feel the need to be invested in order to grow their money. The main flaw to this approach is that stocks are not always the best or even a good investment. By expanding the breadth and scope of your investment universe you will be better positioned to put your money to work within a risk management framework.
Global macro gives you the flexibility and in fact requires the flexibility to go anywhere and do anything in order to have good relative and more importantly good absolute returns. By sticking yourself in a style box you are missing our on a world of opportunities.
David Taggart writes more about generating absolute returns across asset classes and trading styles with Global Macro Trading at
“www.themacrotrader.com”
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