Global Macro Trading

Preface xi Part One: An Overview of Global Macro Chapter 1 Surveying the Global Macro Landscape 3 Types of Global Macro Strategies 3 Return Profile and Allocations 6 Hedge Funds and Global Macro 7 Summary 10 Chapter 2 Trading Process, Sizing Trades, and Monitoring Performance 11 Maintaining a Stringent Process 12 Objectivity and Bias 12 Taking Losses 15 Position Sizing 16 Unit Size 17 Volatility Adjusting Position Size 17 Risk/Reward 18 Correlation 19 Gap Risk 20 Position Sizing Sheet 21 Thematic Trade 21 Sharpe Ratio 22 Sortino Ratio 23 Drawdowns 23 Value at Risk (VaR) 23 Risk Utilization 24 Stress-Testing 26 Monitoring Performance 27 Trend Analysis 29 Bloomberg Shortcuts 31 Summary 31 Chapter 3 Back-Tests, Queries, and Analogs 33 Simple Back-Tests and Queries 33 An Example of Building a Query 34 Historical Correlations and Analogs 40 Summary 43 Chapter 4 The Building Blocks of Global Macro Trading: The Importance of Equities, Fixed Income, Foreign Exchange, and Commodities in Global Macro 45 The Four Product Groups 45 Assessing the Relationships between Assets 50 Summary 53 Chapter 5 Technical Analysis 55 Strengths and Weaknesses of Technical Analysis 55 Types of Charts 56 Volume and Open Interest 63 CFTC Positioning 64 Trend 66 Moving Averages 66 Bollinger Bands 67 Reversal Patterns 67 Head and Shoulders 68 Trend Lines 69 Triple Tops and Bottoms 69 Continuation Patterns 70 Triangles 70 Oscillators 71 Elliott Wave Theory 74 Parabolics 80 Seasonals 82 Cycles 83 Crowd Psychology and Contrarian Views 84 Chartered Market Technician (CMT) 87 Bloomberg Shortcuts 88 Summary 89 Chapter 6 Systematic Trading 91 A Brief Definition of Systematic Trading 91 Framework for Constructing a Systematic Model 92 Assets or Product Groups 92 Strategies 93 Factors 97 Risk Factors 98 Risk Premia 99 Risk Parity 100 Summary 103 Part Two: Global Macro Trading Foundation Chapter 7 Foreign Exchange in Global Macro 107 The Role of the U.S. Dollar 107 Trading Currencies 109 Currency Regimes 111 Valuation Techniques for Foreign Exchange 120 Bloomberg Shortcuts 134 Summary 135 Chapter 8 Equities 137 Equity Indices Overview 137 Equity Derivatives 140 Valuation Techniques for Equities 149 Bloomberg Shortcuts 159 Summary 161 Chapter 9 Fixed Income 163 Funding/Money Markets 163 London Interbank Offered Rate (LIBOR) 170 Interest Rate Swaps 172 Federal (Fed) Funds 172 Overnight Indexed Swaps (OIS) 173 Forward Rate Agreements (FRAs) 176 U.S. Fixed Income Futures 177 Sovereign Credit 180 Sovereign Curve 181 Curve Inversion 181 Credit Default Swaps (CDS) 182 Exchange Traded Funds (ETFs) 187 Bloomberg Shortcuts 188 Summary 194 Chapter 10 Commodities 195 Supply Drivers 196 Demand Drivers 197 Ending Stock 198 Contango and Backwardation 198 CRB Index 200 Return and Volatility 200 Energy 201 Natural Gas 219 Precious Metals 223 Industrial Metals 231 Agriculture 237 Bloomberg Shortcuts 264 Summary 267 Chapter 11 The Role of Central Banks in Global Macro 269 Monetary Policy Goals 269 Tools Used by Central Banks 271 The Impossible Trinity 275 Monetary Base 276 Money Supply 276 Reserves 277 Zero Lower Bound and the Liquidity Trap 279 Quantitative Easing 279 interpreting central bank communication 282 Central Banks 286 Bloomberg Shortcuts 310 Summary 311 Appendix: Fed Programs during the Financial Crisis 311 Chapter 12 Economic Data Releases and Demographics 315 Measuring Growth 315 Inflation 316 Employment and Population 317 Balance of Payments 320 Government Indicators 323 Consumption Indicators 325 Industry and Services Indicators 326 Demographics 329 Bloomberg Shortcuts 333 Summary 334 References 335 About the Author 341 Index 343