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, like we have had recently in the EURUSD and USDJPY.
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. Our old friend – the internet – has changed everything.
We have entered the age of the retail FX trader. There are plenty of quality information resources available at a low cost, and even free if you know where to look (more on that soon).
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.
- Debt destruction/ Deleveraging
- Central Banks
- Economic performance
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 resources for the retail trader
How to learn about the above and stay on top of changes?
It’s a matter of diving in and learning. After a while this stuff will start to make more sense – and you will be learning from the right people.
These are the resources I recommend you follow.
- Marc to Market Blog. By Marc Chandler, former head analyst at Brown Brothers Harriman. This blog is an excellent free resource for understanding what is moving the market.
- Kiron Sarker. This guy is a genius and we are very lucky that he has started publishing his writing for free this year.
- John Mauldin. One of the best analysts I know. He publishes a free weekly newsletter, and I also recommend his paid Over My Shoulder
- FX Renew. (Excuse the plug.) We have three excellent Macro traders with over a century of trading experience sharing their insights, strategies and Forex signals at FX Renew. I also do a weekly overview video on the FX Renew blog.
- Real Vision Television. A very cool paid news service run by a trader who writes a global macro newsletter to hedge funds.
- FXWW Chatroom. A very good place to find out what is going on, and to get hold of bank research.
If you come across something that doesn’t quite make sense, set aside some time to dig deeper and put in some research. The more you know, the more opportunities you can find and exploit in the long run (It took me forever remember what “hawkish” and “dovish” meant!!).
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 that you subscribe to 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.
Over to you…
The best way to become a macro trader is to get started reading. After a while, you will start to form a view that you can trade. Then it’s time to focus on implementation and risk management.
If you want more detailed instruction on this subject, try the Advanced Forex Course for Smart Traders.
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About the Author
Sam Eder is a currency trader and author of the Definitive Guide to Developing a Winning Forex Trading System and the Advanced Forex Course for Smart Traders (get free access). He is a co-owner of Forex Signal Provider www.fxrenew.com. If you like Sam’s writing you can subscribe to his newsletter.