Global Macro Trading Journal

Quote from Daal:

I would like to see the evidence that those estimates are more reliable. As far the 2nd point goes, if ES tanks 4% on monday you promise you are not selling?I see a lot of people who want to ride momentum and try to spin the 'fundamentals' in their favor to feel good about holding the position. I hope thats not what you are doing
More...

The evidence they are more reliable is that they are being beaten, more than missed, by the data as it comes along.

It would be absurd to 'promise' not to make a trading decision - why would I restrict my range of options? For example, if WWIII breaks out and the ES falls 4%, not only will I sell, I will go maximum short. However, if the ES falls 4% because Bernanke opens his mouth, and signs of normal bull market capitulation occur (e.g. VIX spiking significantly, mini-panic in the financial media etc), then probably I will be looking to buy some (if I am not already long up to my comfort level) rather than sell.

Almost all significantly profitably trades require you to ride momentum at some point, since the only way very large price moves can occur is for there to be more pro-trend movement than counter-trend. Riding momentum is not a negative, it is an essential component to all profitable directional trading, and one element which most people cannot do properly (hence why so many traders cut profits prematurely). The only way to capture big moves without riding momentum at some point is in things like takeovers, huge earnings beats/misses, or massive currency devaluations, where the price jumps a huge amount overnight or very quickly intraday.

The thing to do with momentum is to follow it until i) it reaches an overdone extreme, at which point it is prone to reversal ii) it slowly peters out, at which point you are likely to see an extended trading range iii) it gets 'broken' by stronger momentum the other way. But whilst it is still in place, as shown by larger rallies than pullbacks, longer-lasting rallies and short-lived pullbacks, vigorous reaction to good news and resilient reaction to bad news, then the right play is to follow it.
 
Quote from Ghost of Cutten:


The thing to do with momentum is to follow it until i) it reaches an overdone extreme, at which point it is prone to reversal ii) it slowly peters out, at which point you are likely to see an extended trading range iii) it gets 'broken' by stronger momentum the other way. But whilst it is still in place, as shown by larger rallies than pullbacks, longer-lasting rallies and short-lived pullbacks, vigorous reaction to good news and resilient reaction to bad news, then the right play is to follow it.
More...

Hear hear!
 
Quote from Martinghoul:

Well, you see, GoC, as I have said before, we're just going to continue to disagree on this.

To me, Kahneman's papers and books of that sort (generally classified as works on behavioural economics/finance) actually have a lot more to do with trading than many "trading books". I, for one, am very interested in understanding how people, including myself, make trading decisions and approach risk.

Actually, funnily enough, the best traders I know actually don't read trading books. It's the mediocre ones that do and those haven't survived in the long run.

As to global macro, I daresay I know some basics and yes, I agree that global macro events can and do make my market go crazy. I have survived a few such events. My point here is not that expanding mkt knowledge is a bad thing. I am only suggesting that ever increasing understanding of global macro offers diminishing relative returns to someone like myself, an emphatically non-macro trader. I go to extraordinary lengths to make sure to minimize my outright macro biases, precisely because there's minimal relative edge to be had in macro.

No, not at all. This is an incorrect interpretation. As I am sure you will agree, there's an infinite number of things out there that can, in theory, benefit and be useful. One must perforce make a choice and concentrate on things that offer the highest marginal benefit to oneself, sometimes to the exclusion of other, less useful things. That is what I do and, more importantly, that is also what you do. I choose Kahneman and behavioral economics over trading books, while you choose the opposite. I can respect your choice and I see no need to accuse you of being lazy, unmotivated etc etc. So I would suggest that you keep an open mind and allow that there are people out there who disagree with you. It's generally a good thing for traders to do this.
More...


I found there was little about trading or risk-taking in the summaries of behavioural finance, that I did not already know through my own experience and reading. Behavioural finance, so far, appeared to me to just be rehashing things that experienced speculators have known for hundreds if not thousands of years. To the extent that it comes up with any novel and profitable findings, I will try to understand and utilise them for my benefit - I just haven't seen it yet, but yes I do try to keep tabs on it and any other fields that might have benefit for my work. Whereas you appear to keep tabs on behavioural finance, but not the writings of leading practitioners and researchers in your own field of work - that is a curious oversight, which seems to be driven by certain prejudices you hold, rather than by any logical reasons.

About reading trading books - we can easily see that several great traders have read trading books - for example, Stan Druckenmiller approached George Soros precisely because he had read his book. Paul Tudor Jones not only read trading books, he makes his employees read them. Either you know better traders than this, or you are wrong. Finally, some great traders not only read trading books, they *write* trading books!

I understand your point about limited time, and marginal benefit - I myself read less and more selectively than I did when I was a beginner. That's pretty normal, I think - once you get to a certain level of competence, the marginal value of the average instructional book becomes minimal. A fluent linguist does not need to buy a phrase book. A literary critic might only read a few of the very best novels each year. But someone who eschewed ALL new output, would be rightly criticised as resting on their laurels, losing touch, and is likely to slowly but steadily fall behind those with a more fresh and open attitude to cutting edge learning and development in their field. Furthermore, it is doubly irresponsible to tell those at a lower level of learning, that books on the subject are useless.

Finally, you seem to have this assumption that one cannot be good at more than one type of trading. Since separate types of trading are often uncorrelated, and uncorrelated returns boost total return whilst reducing risk, why wilfully give up opportunity by staying in one field? There's also the risk that whatever niche you are in will at some point become too competitive to earn above-average returns. Fat edge always degrades, precisely because it is so appealing to competition, it is usually only the 'thin' edges which persist over time.

I criticise your attitude in this area not because I have a closed mind (I even allowed that being lazy is fine IF that is deliberate priority of yours), but because analysis of the evidence suggests that you are wrong, and because your belief here is based on inaccurate prejudices and ignorance about the subject. Being wrong because of prejudices and ignorance is not worthy of respect, it is worthy of (constructive) criticism, which I have given and explained in detail.
 
Quote from Butterball:

Apples to oranges comparison. Government and corporate bond yields represent - bar defaults - very predictable recurring cash-flows until maturity. Equity earnings using a snapshot of the price/earnings ratio do not.

Especially not at historically high corporate margins.
More...

Not really because I was comparing their relative valuation. Just as it is possible to compare AAA bonds with Treasuries, despite difference in predictability of cash-flows, by looking at the risk premium earned by taking the greater risk of AAA, so it is possible to compare equities with Treasuries and cash, despite their different predictability of cash-flows. At the moment the equity risk premium is quite high by historical standards, implying that valuations of equities are cheap relative to bonds. And don't forget that you can choose more 'blue chip' equities, which have rather more stable cash flows, to construct a portfolio from. In fact, once you take into account the risk to real cash flows from inflation, there are scenarios under which blue chip equities may in fact be safer places to put cash than Treasuries.
 
Quote from Ghost of Cutten:

I criticise your attitude in this area not because I have a closed mind (I even allowed that being lazy is fine IF that is deliberate priority of yours), but because analysis of the evidence suggests that you are wrong, and because your belief here is based on inaccurate prejudices and ignorance about the subject. Being wrong because of prejudices and ignorance is not worthy of respect, it is worthy of (constructive) criticism, which I have given and explained in detail.
More...
Fair enough or, as we say arnd these here parts, fairy muff...

I am happy to take your criticism in the spirit it was offered. I will go read a couple of them books (starting w/Drobny) and see if I can disabuse myself of my possibly erroneous preconceptions.
 
Quote from Ghost of Cutten:

The evidence they are more reliable is that they are being beaten, more than missed, by the data as it comes along.

It would be absurd to 'promise' not to make a trading decision - why would I restrict my range of options? For example, if WWIII breaks out and the ES falls 4%, not only will I sell, I will go maximum short. However, if the ES falls 4% because Bernanke opens his mouth, and signs of normal bull market capitulation occur (e.g. VIX spiking significantly, mini-panic in the financial media etc), then probably I will be looking to buy some (if I am not already long up to my comfort level) rather than sell.

Almost all significantly profitably trades require you to ride momentum at some point, since the only way very large price moves can occur is for there to be more pro-trend movement than counter-trend. Riding momentum is not a negative, it is an essential component to all profitable directional trading, and one element which most people cannot do properly (hence why so many traders cut profits prematurely). The only way to capture big moves without riding momentum at some point is in things like takeovers, huge earnings beats/misses, or massive currency devaluations, where the price jumps a huge amount overnight or very quickly intraday.

The thing to do with momentum is to follow it until i) it reaches an overdone extreme, at which point it is prone to reversal ii) it slowly peters out, at which point you are likely to see an extended trading range iii) it gets 'broken' by stronger momentum the other way. But whilst it is still in place, as shown by larger rallies than pullbacks, longer-lasting rallies and short-lived pullbacks, vigorous reaction to good news and resilient reaction to bad news, then the right play is to follow it.
More...

I would need to see a data sample larger than 2-3 years, otherwise I would be long and be totally skeptical of this being some new bull market but rather just a wave that I'm looking to dump as soon as it turns

I have no problem with momentum riding. I do have a problem with people who are riding momentum but somehow say that the 'fundamentals' are backing their trade because they are uncomfortable with momentum riding on itself. If thats not your case then ok, my point wasn't addressed to you. But I do see this quite a bit out there
 
Quote from Daal:

II do have a problem with people who are riding momentum but somehow say that the 'fundamentals' are backing their trade because they are uncomfortable with momentum riding on itself. If thats not your case then ok, my point wasn't addressed to you. But I do see this quite a bit out there
More...

Who says that other than stooges on CNBC. Not a one on this thread. You've constructed yourself a straw man and beat him in an argument. Well done.
 
I was getting excited at the possibility the HKD was going to test its highs (And force the CB to print a ton of cash to hold it, fueling the bubble even more)but now it is declining. I just closed 50% of my position there at a small profit. It seems to me that the chance of reval have declined quite a bit due the slowdown of the economies and now with the currency away from the high
My net on the short HK stocks has been a small loss(Made a bunch on last year and lost a bunch in the rally). Overall it has been a flattish trade

But I'm expecting the short HK stocks to perform quite well over the coming months
 
You must log in or register to reply here.
Back
Top