The Macro Trader and Interest Rate Cycles
Because of how they invest macro traders trade everything including stocks, bonds, commodities, and currencies. In fact the larger funds even trade real estate. They do this in the hopes of finding the best risk to reward situations on the planet and not just in one area.
An area of the financial markets where macro traders tend to do really well is that of fixed income and interest rates. Both academia and practitioners of global macro have found this to be the case over the years. This is not a fluke as the basic trend of interest rates essentially screams profit opportunity.
Interest rates to go up one month, down one month, and then back up the next month. No, instead they tend to move in relatively smooth trends with the very rare blip where a central bank quickly reverses course.
Worldwide central banks are trying to manage entire economies. In so doing they cant turn on a dime and instead are forced to guide the huge cruise ship in a smooth manner. Instead of changing their minds every meeting they instead will raise three, four, even ten times in a row before pausing for a while and then typically reversing course and easing rates several times in a row. It takes a while to change the growth of a nation and this time is where macro traders gain a significant part of their edge.
If you take the time to track the economy and to read the central banks meeting notes you will have a very good chance at predicting what the bank will do. In fact even if you wait for the first easing or tightening announcement you will typically have ample time to out on some good trades to take advantage of it. This is because in a few months they will likely do the same thing again and again. These trends are real and they last for a while.
And whereas the regular stock trader only has two main decisions that they can make in light of interest rate changes the macro trader has several tools and trading strategies at their disposal. You can go long high yielding currencies, you can go short oil, or you can do the classic trade and go long or short bonds.
In fact fixed income is one of the primary profit drivers of macro trading. Because interest rate trends are so well defined the risk is less then an outright position is stocks or commodities in a normal cycle. Yes, there are still risks but they are lessened. If rate are coming down bonds will go up and if they are going up then bonds will go down.
Trading around interest rate trends is one of the most consistent macro trading strategies available. If you are not tracking interest rates then you are missing out on some of the best risk to reward opportunities in the market place. It only takes a few really good trades a year to generate healthy and consistent returns for an entire portfolio. - 23210
An area of the financial markets where macro traders tend to do really well is that of fixed income and interest rates. Both academia and practitioners of global macro have found this to be the case over the years. This is not a fluke as the basic trend of interest rates essentially screams profit opportunity.
Interest rates to go up one month, down one month, and then back up the next month. No, instead they tend to move in relatively smooth trends with the very rare blip where a central bank quickly reverses course.
Worldwide central banks are trying to manage entire economies. In so doing they cant turn on a dime and instead are forced to guide the huge cruise ship in a smooth manner. Instead of changing their minds every meeting they instead will raise three, four, even ten times in a row before pausing for a while and then typically reversing course and easing rates several times in a row. It takes a while to change the growth of a nation and this time is where macro traders gain a significant part of their edge.
If you take the time to track the economy and to read the central banks meeting notes you will have a very good chance at predicting what the bank will do. In fact even if you wait for the first easing or tightening announcement you will typically have ample time to out on some good trades to take advantage of it. This is because in a few months they will likely do the same thing again and again. These trends are real and they last for a while.
And whereas the regular stock trader only has two main decisions that they can make in light of interest rate changes the macro trader has several tools and trading strategies at their disposal. You can go long high yielding currencies, you can go short oil, or you can do the classic trade and go long or short bonds.
In fact fixed income is one of the primary profit drivers of macro trading. Because interest rate trends are so well defined the risk is less then an outright position is stocks or commodities in a normal cycle. Yes, there are still risks but they are lessened. If rate are coming down bonds will go up and if they are going up then bonds will go down.
Trading around interest rate trends is one of the most consistent macro trading strategies available. If you are not tracking interest rates then you are missing out on some of the best risk to reward opportunities in the market place. It only takes a few really good trades a year to generate healthy and consistent returns for an entire portfolio. - 23210
About the Author:
If you need actionable trading ideas then check out The Macro Trader It is a weekly global macro trader advisory publication with frequent intra-week updates for time-critical analysis and actionable trading ideas.
posted by X - Men @ 2:21 AM
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