How to be a global macro currency trader

25 June 2016, 21:09
Sherif Hasan
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How does your current trade fit into the big picture?

If the trades you take fit nicely into the larger scheme of things, you will find it much smoother sailing than butting heads against a macro trend.

When you have a strong view about a currency pair based on its fundamentals, it helps in several ways:

  • You will have greater conviction in your trade, allowing you to size your positions accordingly.

  • You can understand what news actually means to the continuation of your trade. News will no longer be a hodgepodge of numbers, forecasts, analysts and expectations.

  • Ultimately, it will give you the skills and confidence to capture moves of 1000 pips or more.

But how to become a global macro guru?

You might think that macro trading is the providence of those keyed in individuals, in their pristine Wall Street offices (gold toilets and all). After all, isn't it about access to information?

Well, that may well have been the case once upon a time, but now the landscape has changed.

We have entered the age of the retail forex trader. There are plenty of quality information resources available at a low cost, and even free if you know where to look

I didn't say it was easy

Becoming a macro trader is an art form.

And, like mastering any art form, it takes time, experience and the persistence to handle the inevitable knock backs.

It's also not going to be for everyone. Maybe I've finally found a use for my history degree as a macro trader. For others who don't process information in the same way I do, perhaps it is not the right path - only you can be the judge of that.

Technical analysis it critical for implementation

Macro trading legend Ray Dalio has said time and time again that implementation is more important than the trade idea itself.

To be a good macro trader, you need to focus heavily on implementation. It's one thing to have an idea, and another to be able to implement that idea profitably while managing your risk.

As a macro trader, you might primarily generate fundamental ideas. It's still important to realize that "price is king". It's by buying at the correct levels, with the right position size, that you actually make money on the idea. This is where technical analysis comes in so handy.

It's wonderful to believe that the Euro is going to go down, but it's another thing entirely to make a decent clip from that belief. So, build your plan around the price.

In particular, it's my belief that macro trading suits a scale-in and scale-out approach, so you don't have to be 100% right on your entries and exits. It's best if you start and finish small, having captured the meat of the move with a large position running.

Key topics that move the currency markets

For the aspiring macro guru, you are going to need to master some topics. This list could change, but these are the things that tend to move currency pairs over the longer-term.

  • Inflation: Increases in the supply and velocity of money

  • Deflation: Decreases in the supply and velocity of money (including debt destruction)

  • Central Banks: Interest rates, Quantitative Easing programs and interference

  • Economic performance: The growth of the economy and the labour market

  • Demographics: The impact of trends in population growth (such as baby boomers retiring)

  • Commodity prices: How commodities like Oil, Gold and Dairy affect the price of the currency

  • Stocks prices: If we are in a bull or bear market (risk-on/risk-off)

  • Geopolitical and environmental factors: Major events that move markets or effect supply

You also need to understand them in the correct manner. The good news is that if you manage your risk and implement your ideas well, you can still be very profitable if you have some ideas that don't pan out. Good global macro traders might only be right 50% of the time; it's just that when they are, they win big.

Macro trading suits retail traders

As you are generally looking at longer-term trends, you can place trades on weekly and daily charts to express your view. This is good for the retail trader, as it does not require you to watch the screen 24/7.

You can then read the research on the way to or from work, or when you get some down time in the evening. Once you get into this kind of reading, it is actually quite fun.

Just remember you don't have to make 100% a month as a forex trader. if you can replace you income form your day job over the course of a year, well that is pretty good in my book.

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