Global Macro Trading: Profiting in a New World Economy

487 Pages·2014·9.56 MB·English

by  Greg Gliner

Contents
1. Preface
2. Part One: An Overview of Global Macro
1. Chapter 1: Surveying the Global Macro Landscape
1. Types of Global Macro Strategies
2. Return Profile and Allocations
3. Hedge Funds and Global Macro
4. Summary
2. Chapter 2: Trading Process, Sizing Trades, and Monitoring
Performance
1. Maintaining a Stringent Process
2. Objectivity and Bias
3. Taking Losses
4. Position Sizing
5. Unit Size
6. Volatility Adjusting Position Size
7. Risk/Reward
8. Correlation
9. Gap Risk
10. Position Sizing Sheet
11. Thematic Trade
12. Sharpe Ratio
13. Sortino Ratio
14. Drawdowns
15. Value at Risk (VaR)
16. Risk Utilization
17. Stress-Testing
18. Monitoring Performance
19. Trend Analysis
20. Bloomberg Shortcuts
21. Summary
3. Chapter 3: BackTests, Queries, and Analogs
1. Simple BackTests and Queries
2. An Example of Building a Query
3. Historical Correlations and Analogs
4. Summary
4. Chapter 4: The Building Blocks of Global Macro Trading: The
Importance of Equities, Fixed Income, Foreign Exchange, and
Commodities in Global Macro
1. The Four Product Groups
2. Assessing the Relationships between Assets
3. Summary
5. Chapter 5: Technical Analysis
1. Strengths and Weaknesses of Technical Analysis
2. Types of Charts
3. Volume and Open Interest
4. CFTC Positioning
5. Trend
6. Moving Averages
7. Bollinger Bands
8. Reversal Patterns
9. Head and Shoulders
10. Trend Lines
11. Triple Tops and Bottoms
12. Continuation Patterns
13. Triangles
14. Oscillators
15. Elliott Wave Theory
16. Parabolics
17. Seasonals
18. Cycles
19. Crowd Psychology and Contrarian Views
20. Chartered Market Technician (CMT)
21. Bloomberg Shortcuts
22. Summary
6. Chapter 6: Systematic Trading
1. A Brief Definition of Systematic Trading
2. Framework for Constructing a Systematic Model
3. Assets or Product Groups
4. Strategies
5. Factors
6. Risk Factors
7. Risk Premia
8. Risk Parity
9. Summary
3. Part Two: Global Macro Trading Foundation
1. Chapter 7: Foreign Exchange in Global Macro
1. The Role of the U.S. Dollar
2. Trading Currencies
3. Currency Regimes
4. Valuation Techniques for Foreign Exchange
5. Bloomberg Shortcuts
6. Summary
2. Chapter 8: Equities
1. Equity Indices Overview
2. Equity Derivatives
3. Valuation Techniques for Equities
4. Bloomberg Shortcuts
5. Summary
3. Chapter 9: Fixed Income
1. Funding/Money Markets
2. London Interbank Offered Rate (LIBOR)
3. Interest Rate Swaps
4. Federal (Fed) Funds
5. Overnight Indexed Swaps (OIS)
6. Forward Rate Agreements (FRAs)
7. U.S. Fixed Income Futures
8. Sovereign Credit
9. Sovereign Curve
10. Curve Inversion
11. Credit Default Swaps (CDS)
12. Exchange Traded Funds (ETFs)
13. Bloomberg Shortcuts
14. Summary
4. Chapter 10: Commodities
1. Supply Drivers
2. Demand Drivers
3. Ending Stock
4. Contango and Backwardation
5. CRB Index
6. Return and Volatility
7. Energy
8. Natural Gas
9. Precious Metals
10. Industrial Metals
11. Agriculture
12. Bloomberg Shortcuts
13. Summary
5. Chapter 11: The Role of Central Banks in Global Macro
1. Monetary Policy Goals
2. Tools Used by Central Banks
3. The Impossible Trinity
4. Monetary Base
5. Money Supply
6. Reserves
7. Zero Lower Bound and the Liquidity Trap
8. Quantitative Easing
9. interpreting central bank communication
10. Central Banks
11. Bloomberg Shortcuts
12. Summary
13. Appendix: Fed Programs during the Financial Crisis
6. Chapter 12: Economic Data Releases and Demographics
1. Measuring Growth
2. Inflation
3. Employment and Population
4. Balance of Payments
5. Government Indicators
6. Consumption Indicators
7. Industry and Services Indicators
8. Demographics
9. Bloomberg Shortcuts
10. Summary
4. References
5. About the Author
6. Index
7. End User License Agreement
List of Illustrations

1. FIGURE 1.1 Global Macro versus S&P 500 from January 1995 to
September 2013
2. FIGURE 1.2 (a) Performance of Global Macro during the Top Five Losing
Quarters in SPX since January 1995 and (b) Performance of Global Macro
during the Top Five Best Quarters in SPX since January 1995
3. FIGURE 1.3 Changes in Pension Funds’ Allocations to Different Hedge
Fund Strategies from 2009 to 2012
4. FIGURE 2.1 Sample Normal Distribution
5. FIGURE 2.2 Euro Stoxx 50 Chart March 15, 2013 − March 18, 2013
6. FIGURE 2.3 10-Year Japanese Government Bond Yields
7. FIGURE 2.4 Nonlinear Risk Utilization
8. FIGURE 2.5 Baseball Hot Spots in the Strike Zone
9. FIGURE 3.1 British Pound Intraday Performance on July 5, 2012
10. FIGURE 3.2 FTSE Intraday Performance on July 5, 2012
11. FIGURE 3.3 Dow Jones Industrial Average Price Chart from July 2011 to
December 2011
12. FIGURE 3.4 Analog Period Time Series
13. FIGURE 3.5 U.S. Dollar Index Historical Correlations to 180-Day Analog
Period
14. FIGURE 3.6 Analog Period versus February 12, 2007 through October 20,
2008
15. FIGURE 4.1 Foreign Exchange Market Turnover by Currency Pairs
16. FIGURE 4.2 Canadian Dollar versus WTI Crude Oil
17. FIGURE 4.3 Japan Debt to GDP Ratio and 10-Year Japanese Government
Bonds
18. FIGURE 4.4 Copper versus the Chilean Peso
19. FIGURE 4.5 Four Individual Assets from the Four Market Categories
during the 2008 Financial Crisis
20. FIGURE 5.1 Line Chart of the S&P 500
21. FIGURE 5.2 Sample of a Single Bar on a Bar Chart
22. FIGURE 5.3 Bar Chart of the S&P 500
23. FIGURE 5.4 Sample Candlesticks
24. FIGURE 5.5 Candlestick Chart of the S&P 500
25. FIGURE 5.6 Major Japanese Candlestick Signals
26. FIGURE 5.7 Point and Figure Chart—First Steps
27. FIGURE 5.8 Point and Figure Chart
28. FIGURE 5.9 Arithmetic Scale and Logarithmic Scale
29. FIGURE 5.10 Dow Jones Industrial Average: (a) Regular Chart and (b)
Lognormal Chart
30. FIGURE 5.11 Bar Chart and Volume of the S&P 500
31. FIGURE 5.12 Commitments of Traders Report
32. FIGURE 5.13 Gold CFTC Net Positioning of Noncommercial and
Nonreportable Speculators
33. FIGURE 5.14 Nikkei Historical Price Chart with Trends
34. FIGURE 5.15 Bollinger Band Chart of the S&P 500
35. FIGURE 5.16 Sample Head and Shoulders Pattern
36. FIGURE 5.17 Sample Triple Bottom Pattern
37. FIGURE 5.18 Types of Triangles
38. FIGURE 5.19 Chart of Nasdaq in Broadening Top Formation
39. FIGURE 5.20 S&P 500 Bar Chart with MACD
40. FIGURE 5.21 S&P 500 Bar Chart with RSI
41. FIGURE 5.22 S&P 500 Bar Chart with Stochastics
42. FIGURE 5.23 Elliott Wave Basic Pattern
43. FIGURE 5.24 Zigzags in Elliott Wave
44. FIGURE 5.25 Flats in Elliott Wave
45. FIGURE 5.26 Corrective Wave (Horizontal) Triangles
46. FIGURE 5.27 Bull Market Truncation (Failure)
47. FIGURE 5.28 S&P 500 Chart with Fibonacci Retracements
48. FIGURE 5.29 Historical Price Chart of Silver, 1977–1980
49. FIGURE 5.30 Historical Price Chart of Gold, 1920–2012
50. FIGURE 5.31 Corn Seasonal Data, 1970–2010
51. FIGURE 5.32 Charts of Respective Markets when the Market Leader Had
Their IPO
52. FIGURE 5.33 Chart of the S&P 500 during the October 1987 Crash
53. FIGURE 6.1 Construct and Framework of a Systematic Process
54. FIGURE 6.2 Efficient Frontier
55. FIGURE 6.3 Historical Total Return of Indexed Risk Parity—60% S&P
500/40% Barclays U.S. Aggregate Bond Index
56. FIGURE 7.1 Foreign Exchange Market Turnover by Currency as a Percent
of Volume
57. FIGURE 7.2 Central Bank Holdings of Currencies
58. FIGURE 7.3 Currency Turnover by Market
59. FIGURE 7.4 Chinese Renminbi versus Chinese Renminbi 12-Month
Nondeliverable Forward
60. FIGURE 7.5 Basket of Currencies in SDRs
61. FIGURE 7.6 Hong Kong Dollar Exchange Rate, 1935–2005
62. FIGURE 7.7 U.S. Dollar/Brazilian Real Price Chart
63. FIGURE 7.8 Brazilian Bovespa and Brazilian Real
64. FIGURE 7.9 Mexican Peso versus Mexico Five-Year CDS
65. FIGURE 7.10 Australian Dollar/Mexican Peso Cross versus
Australia/Mexico Five-Year CDS Spread
66. FIGURE 7.11 British Pound versus Three-Month British Pound Risk
Reversals
67. FIGURE 7.12 Canadian Dollar versus WTI Crude
68. FIGURE 7.13 2012 Country Debt to GDP
69. FIGURE 7.14 Big Mac Index
70. FIGURE 7.15 Australian Dollar/U.S. Dollar versus the RBA Rate/Fed
Funds Effective Spread
71. FIGURE 7.16 Euro/U.S. Dollar versus Front Eurodollar/EURIBOR Spread
72. FIGURE 8.1 A Top-Down Approach
73. FIGURE 8.2 Absolute Price Chart of WTI Relative to Individual Energy
Stocks
74. FIGURE 8.3 Equity Rotation in Sectors during Economic Cycles
75. FIGURE 8.4 VIX Annualized Average Daily Closing and Correlation to the
S&P 500
76. FIGURE 8.5 Historical Chart of the VIX Index (Spot)
77. FIGURE 8.6 Payoff Structure of a Long Variance Swap Position
78. FIGURE 8.7 S&P 500 Historical Price/Book Value
79. FIGURE 8.8 S&P 500 Historical Dividend Yield
80. FIGURE 8.9 S&P 500 Historical Price/Earnings Ratio
81. FIGURE 8.10 S&P 500 Historical Free Cash Flow Yield
82. FIGURE 8.11 U.S. Historical Stock Market Capitalization as a Percentage
of GDP
83. FIGURE 8.12 CRB Index Historical Year-over-Year Change
84. FIGURE 8.13 Five-Year CDX High Yield Index
85. FIGURE 8.14 Historical Chart of ISM Manufacturing PMI
86. FIGURE 8.15 Historical Price Chart of the Baltic Dry Index
87. FIGURE 8.16 Historical Chart of ARMS Index with 100-Day Smoothing
88. FIGURE 8.17 Conference Board Consumer Confidence Index
89. FIGURE 8.18 Australian Dollar Three-Month At-the-Money Volatility
versus the VIX Index
90. FIGURE 9.1 Basic Fixed Income Universe: Overview
91. FIGURE 9.2 Inflation-Indexed Yield Analysis Bloomberg Screenshot
92. FIGURE 9.3 Historical Chart of LIBOR-OIS Spread
93. FIGURE 9.4 Market Pricing Factors on U.S. Fixed Income Yield Curve
94. FIGURE 9.5 Bloomberg Screenshot of U.S. Fixed Income Strip
95. FIGURE 9.6 Historical Chart of U.S. 2s/10s Flattener
96. FIGURE 9.7 Bear and Bull Flatteners