Banking and co

Relative value trading and directional trading are the two main global macro investing strategies. Directional is when you take a position thinking you know which way it is going. Relative value or rv trades are when you think that an asset is mis-priced relative to another asset.

There are multiple categories of directional traders. Some are technically oriented and deemed technicians and look at charts and other price action based studies. Other macro traders use fundamental analysis thinking that they can determine if an asset is under or over valued. Gut feel is a style as well. Most of the time gut traders lose their money but there are a few that can trade successfully solely of off their feelings. The next large category of traders are the CTA long term trend followers. They use technical analysis and risk management to build automated trading systems. Then we have the true global macro traders who use a bit from all of these styles in order to have lower drawdowns and higher returns.

Those traders that trade based solely off of fundamentals typically will have good long term results but have what some would deem excessive short term volatility due to their lack of respect of the actual price. Typically id they think something is undervalued they will keep buying more and more which makes a lot when you are right but can really hurt when you are wrong.

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.

Chart reading, also known as technical analysis is the study of price action. Coupled with a solid risk management process many traders are successful at using this approach. Looking at charts enables traders to gauge the sentiment of the market and which way the market may move. Like all forms of trading good risk management is crucial.

Then we come to the so called macro traders. We say so called because in actuality they are just an automatic version of the technicians. CTA or commodity trading advisers typically program automatic long term trend following models with built in risk management systems. A typical system might buy an asset when it hits a new 40 day high and then places a protective stop it it falls 3 ATR’s below it. While the systems vary the underlying results are good. Historically CTA trend following systems have been quite profitable.

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.

Related External Links

• Global Macro Trading Styles
• Global Macro Investors and Trend Following
• Global Macro Investors and Trend Following

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.

There are multiple categories of directional traders. Some are technically oriented and deemed technicians and look at charts and other price action based studies. Other macro traders use fundamental analysis thinking that they can determine if an asset is under or over valued. Gut feel is a style as well. Most of the time gut traders lose their money but there are a few that can trade successfully solely of off their feelings. The next large category of traders are the CTA long term trend followers. They use technical analysis and risk management to build automated trading systems. Then we have the true global macro traders who use a bit from all of these styles in order to have lower drawdowns and higher returns.

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 gut, or by the seat of your pants is typically the worst thing you can do. That being siad there are a few traders who do well at it. The thing that separates the good from the bad is their ability to cut losses. if you cant do that then you will lose. News flow won’t save you if you can’t admit when you are wrong.

Chart reading, also known as technical analysis is the study of price action. Coupled with a solid risk management process many traders are successful at using this approach. Looking at charts enables traders to gauge the sentiment of the market and which way the market may move. Like all forms of trading good risk management is crucial.

Long term trend following is occasionally lumped into the macro category because they trade markets across the globe. They use an automated process that buys when markets trend one way and get out and go the other direction when they turn. Most of the success depends upon the risk management and not so much on the entry rules.

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.

Related External Links

Macro trading and the art of tactical asset allocation can be lumped into the same category. This is because they both share so many similarities. They are both trying to find the best values on the globe and in several different asset classes. The difference is that most global macro traders are aiming for absolute returns whereas tactical asset allocation is typically only looking for market beating returns and less then market risk.

Global tactical asset allocation is a dynamic asset allocation process. Instead of just deciding on an optimal allocation and rebalancing each year the tactical asset allocator will attempt to take advantage market dislocations in order to generate higher returns and even more importantly do it with less risk. Global tactical asset allocators will build valuation and risk models for every market they can find and then allocate depending upon which asset shows the most potential.

As you can see this is a lot like a global macro investor. Global macro is when you are looking at every investable asset class and trying to decide where are the best risk to reward opportunities.

So what is the difference between global tactical asset allocators and global macro traders? There are two primary differences. One is that most tactical asset allocators have a three to five year time horizon whereas most macro traders will be looking at a few months to a year or so for most of their ideas. Another primary difference is that most macro traders are not trying to only beat their benchmarks but also beat the zero line, meaning that they are aiming for absolute returns.

Tactical asset allocation tries to combine standard asset allocation along with global macro trading in order to achieve higher returns then buy and hold while holding less than market risk. As anyone that has traded for a long time knows, risk reduction is one of the best things that traders can do to improve their results.

All global macro traders can benefit from the models, ideas, and research done by tactical asset allocators. By looking at their methods global macro traders can find more and sometimes better ways to find profitable long term investing opportunities.

It only makes sense to combine the global macro with tactical asset allocation. If you stretch out your time horizon a bit you can find a lot more opportunity that other traders aren’t able to uncover.

Related External Links

• Global Macro Investors And Tactical Asset Allocation
• NetOfficials » Blog Archive Global Macro Trading Is More Then Just …

How to invest in oil is a subject of great interest to quite a few traders in a world economy that is largely driven by the price and availability of products derived from products obtained from crude oil, like gasoline, diesel fuel, jet fuel, plastics, and fertilizer.

It is hard to envision a world in which these products are extremely expensive or not widely available at any price but within a few years that could be the case .

Peak Oil is a term that most investors are now aware of. Yet the meaning of peak oil is widely misunderstood. It does not mean that the world is nearing a time where there is no oil available. Rather it refers to the rapidly developing situation in the production of oil where the major oil fields of the world are in a state of production decline and even with new technology no major easy to access oil fields have been recently discovered.

In other words, the easy to find, inexpensive to pump, oil discoveries have already been discovered. There are important new oil fields, like the huge field off the coast of Brazil, but the oil field is a very deep field indeed and the oil will be quite expensive to pump and transport to refineries.

After reaching the ocean floor some 6,000 feet down the oil is still about 4,000 feet below the ocean floor in vast reservoirs. That oil will be very expensive to extract. It will probably be at least ten years before any oil is produced and that will happen only with much higher sustained prices than current prices for crude oil.

Even with a brief study of the dynamics of the crude oil market investors will probably conclude that oil prices are headed higher, perhaps much higher, and perhaps in the not too distant future. We have already experienced a spike in oil prices to about $147 a barrel followed by a collapse to a low of about $33 a barrel. The big question is how much will the world recession cut into oil demand? So far the reduction in demand has been less than one might expect.

The question then is how to invest in oil if you are a typical investor with limited resources? If you trade oil futures contracts the volatility of the market and the margin required to purchase contracts make oil trading a very risky venture, out of the reach of many traders. Even if you have the required money to purchase and to hang onto your positions you may not be able to stomach the gut churning volatility.

There is a solution that you may wish to consider. Look in the resource box below.