Global Macro Trading Is More Then Just Charts

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 global macro traders also use trend following knowledge. But as opposed to the commodity trading firms they only use them as part of the analysis and rarely trade without an underlying fundamental reason.

Global macro trading firms also use a lot of fundamental and sentimental analysis in order to determine what to trade. Most funds want a real reason as to why something should happen and not just that it is happening. They still use price action it is just that they have it backed up by the market fundamentals and market tone to give them better odds and allow them to adjust their exposure accordingly.

Probably the most famous example of using technical as well as fundamental analysis is when George Soros and Stanley Druckenmiller broke the bank of England. No they did not actually break anything. But they did make over a billion dollars in two days. Without fundamental analysis this would not have been possible.

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 of England gave in a devalued the British pound which enabled the Soros funds to make over a billion dollars in the ensuing two days. If the fundamentals had not been in place there is no way that they would have put the trade on in such size.

This trade essentially encompassed something that another great trader Michael Marcus who once said: I think the secret is cutting down the number of trades you make. The best trades are the ones in which you have all three things going for you, fundamentals, technicals, and market tone. If you can restrict your activity to only those types of trades then you have to make money in any market under any circumstances.

Essentially trading is a hard enough game as it is why compound it by making your chances of being right less then they already are? You want as many things in your favor as possible so it is important to use fundamentals in your trading