Ever heard of the Dark Ages from history class? It was some period of time in Europe were there was a period of deterioration, etc.. Who cares right?
Well there can most certainly be a dark age in many peoples trading development. The dark ages where you are trapped in the cycle of technical indicators, chart patterns, price patterns, etc. Your mind becomes obsessed with finding the super system with a combination of such things and you engage in trading system hopping.
It has been many years, but I do still remember these dark ages of the trading journey and still have some notes and blog about them in order to help you get out of the rat race and unleash your trading potential.
So how do you get out of the rat race?
That was the question that was on my mind during the dark ages of trading. I realize I was trapped in a box, but how do I get out of it? What do I need to look for and do to get out of the box I am trapped in? When I get out of the box, how will the trading world look like? What type of expansive trading paradigm can I develop?
That is where I discovered the world of order flow trading. In the beginning it was a lot of stop hunting and option barriers as I showed in the order flow trading journey.
After I spent time on that I realized I was entering another box – which I call the Stop Hunting / Option Barrier bubble.
Then I had to look for an even higher level of trading.
And I did find it. It was in the information flow.
Global Macro Trading – a strategy where you use information flow from macro economics, news, politics, interest rates, etc to help you place trades.
One thing that helped to make me shift away from price/chart/tech indic to a more order flow mindset, was keeping track of all the central bank commentary. Keep track of what the key central bank officials said every day and every week. So I had these files on all the major central banks and I would record what they said about monetary policy. It was a rudimentary process, but it did slowly open my eyes to the fresh and exciting world of Global Macro Trading.
I started keeping track of the markets shifting expectations for changes in interest rates.
Now, those aren’t the only things that move the market, but they are a great start and can help you make the shift to a higher level of awareness and trading potential.
Most traders from the forums don’t do this because:
1. They either think that such things are B.S. since “all info shows up in the price, so why not just follow the price action.” Then they figure, if everything shows up in the price, then I can use price patterns, chart patterns, technical indicators, the works, etc! And on goes the descent into the Dark Ages and rat race.
There isn’t anything wrong with chart patterns, or a price chart, etc. I do use them a little bit, but my first and foremost analysis comes from the information flow and Global Macro Analysis. That is where the truly powerful trades come from.
Always remember that the greatest trades in history were not placed with a tech indicator, chart pattern or price pattern. The greatest trades in history, and the ones of the future, have been placed and will be placed with Global Macro Analysis.
2. They try their best, but they can’t make sense of it. They get overwhelmed by it. They can’t figure out how to use it in trading. They can’t figure out the jargon and they just give up and go back to their previous world.
Solution? Buy the Order Flow Mastery Course! Send an email to email@example.com if you are interested.
You may be wondering, what books can help you in learning about and mastering Global Macro Trading? There are a lot of new books written on this subject. Some people don’t call it Global Macro Trading – they call it intermarket analysis.
I am going to go out on a limb here and say the proper term is called Global Macro Analysis, NOT intermarket analysis. Whatever you do with intermarket analysis, you can do with Global Macro Trading. When you search for correlations and relationships between markets, that is a form of global macro trading at work.
If you stick with learning about Global Macro then I believe you will be far better off than going down the path of intermarket analysis.
Back to what books can help you with Global Macro Trading. You can do a search for global macro trading. But that doesn’t always find the best books on the subject.
My Recommendations would be:
1. The Alchemy Of Finance by George Soros: There are large parts of this book that are unreadable and confusing. But the key portion of the book is where Soros shows off how his portfolio is positioned and the rationale behind his trading decisions. You get to see how much leverage he is using, the fluctuations in profit and loss and the big or small directional bets he is placing.
2. Reminiscences of a Stock Operator By Edwin Lefevre: Most people don’t know that a fair portion of this book deals with Global Macro Trading. Most people believe that it only has to do with bucket shop scams, and some stock trading. When in reality, the most important part of the book deals with how Livermore eventually evolved into a trader placing trades based on “general conditions”, which is another way of saying “macro conditions.” It’s just that economic and trading terms back in the 1920’s were not as evolved as they are now. They didn’t know about or called it “Global Macro Trading” back then. It was with Global Macro Analysis that Livermore has his trading account equity reach $100 million during the Crash of 1929.
3. Inside the House of Money by Steve Drobny: This is in a Market Wizards type of book format where there are questions and answers. The difference between this book and the Market Wizards books, is that in the Market Wizards books, there is an eclectic mix of different strategies. Some of global macro, some are quantitative, some of floor traders, etc. In the book Inside the House of Money, it specializes in Global Macro Trading. You can consider this the “graduate school version” of the Market Wizards books. It is a bit more difficult to understand, but well worth it if you can crack the code.
4. The Invisible Hands by Steven Drobny: This is a followup book to Inside the House of Money. It talks a lot about the 2008 crash and what happened. There was a lot of Wealth Destruction in 2008, but also a lot of money made by traders who understood Global Macro Analysis. This book is even harder to understand than Inside the House of Money, but again it is worth it if you can pick out a few trading gems.
Don’t fall into the trap of thinking you have to understand 100% of a book the first time you read it. You don’t have to in order to find very profitable information. Even Paul Tudor Jones has said that every time he re reads Reminiscences of a Stock Operator, he discovers something knew. But he still made a lot of money in his 30 year trading career, even if he didn’t grasp 100% of its meaning the first time he read it.
Just focus on finding the key 5-20% of the information that is useful to you at your specific part of the trading journey.
There are various decisions that have to be made during a traders career. One of those is whether to move from a tech indicator/chart pattern / price pattern to a more order flow based trading strategy. Then the next decision is whether you choose to stay merely in the stop hunting / option barrier world of order flow trading, or embrace the wonderful world of the information flow.
Making the Shift to Global Macro
Despite this lesson and all my previous lessons, people may still be skeptical about whether this stuff works or not or causes markets to move. Well let’s take an example from Soros’s Alchemy of Finance:
In Alchemy, there is a market moment where Soros lost $100 million dollars in 48 hours when the S&P fell from 247 to 230. Why did such a move happen? Was it because of the tech indicators or price patterns? Or was it global macro related to macro economics, news, politics, etc?
Let’s take some quotes from Soros’s description of what happened:
There has been a change in leadership: cyclical and oil stocks have come to the fore, but the old leadership, where investors have large profits, is acting poorly. I believe the tax bill is responsible: the tax rate on long-term capital gains is going to be higher next year.
The stock market is increasingly dominated by tax considerations. These are difficult to read but I believe that on balance the pressure will be on the downside for the next few months.
The last two days’ sharp sell-off found me unprepared… we are suffering a major setback.
In retrospect I should have realized that the tax reform bill could dislocate the market, coming at a time when the market was consolidating anyhow. The inducement to sell first and buy back later was just about irresistible.
And there you have it. Soros’s explanation for what happened. The only mention of charts is when he said the “market is consolidating.”
Now some people may say that everything is shown in the price and in the chart patterns and in the tech indicators, etc. That is one of the greatest misconceptions and fallacies perpetrated upon the unsuspecting trading forum viewers. Everything DOES NOT show up in the price. The price along cannot tell you what expectations are attached to the market at that given moment in time. Pure technical indicators and chart patterns and price patterns cannot tell you such things. Global Macro Trading can.
Order Flow, Information Flow and Global Macro Trading can give you a trading edge and jump on 95% of other traders and get you into the moves earlier and at better prices, and teach you to know when to leverage up and when to leverage down.
Misc Trading Thoughts
You can do macro with a small account. If you are already trading spot forex, you can do macro. If you are already trading stocks, you can do macro. If you are already trading futures, you can do macro.
You don’t have to start with $100,000 or $1 million dollars. Don’t get intimidated by the big hedge funds that do “global macro.” You can do global macro with a small account, medium account, or large account. Obviously large accounts have access to more markets, more information, better position sizing, etc, but you can have amazing results with global macro with a small trading account.
You don’t need any special news service or charting package that you pay $500 a month for. You can get all the relevant news for free.
Other people think global macro doesn’t work because they try to use it on too small of market movements. They try to explain 5 and 15 pip moves using global macro, and they struggle with it. Well guess what? The market isn’t just made up of scalping for 5 and 10 pip moves! There are bigger moves to catch!
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