One question: Since you release these outlooks about every 3 weeks, does it mean your outlook is good for 3 weeks? Example, look to only short EUR and long USD for the next 3 weeks until your next outlook? I know most people give outlooks for 1 week etc
How long are they good for? Well, I operate under the principle that I take it day by day, and it is based on the scenario. If I interpret the information and I believe there is a macro bias somewhere and opportunity, then I will say so in the Macro Outlook. Like over the past few months with the bearish EUR/USD. But I do not want to say any guarantees, as there are no guarantees in the market. So that is where I tell people: this is what I expect to happen, here is why, these are the bullish and bearish scenarios that can cause the bias to be intensified, or to reverse, etc. So I always want to be aware of what the current moment looks like and what the near bullish and near bearish scenarios for a market can be.
I used to do the outlook every week, but I came to the conclusion it was too fast. I was probably constantly trying to interpret the new data and perhaps changing my mind too often. Sometimes the situation does not change that fast. The market can need time to form a macro move and for the macro imbalances to form, and then to correct themselves via the trends. Jesse Livermore once said: “The realization struck me that the time element was vital in forming a correct opinion as to the approach of the really important market movements.” The way I interpreted that is that, if you don’t see anything stay out, and wait another day or week to allow yourself to interpret fresh information flow and economic data, fresh sensitivity data, and/or wait for some stops to get tripped to get in at a better price. And sometimes when a big macro move happens, the market wants to consolidate a bit before continuing.
So for example, if I was to compare the past two macro outlooks. In the one three weeks ago, I said the S&P was probably to fall further and I was no longer bullish on USD/JPY. And it fell hard for a few days, but then rallied strongly. So the analysis was only good for a few days, and only caused a Multi Day Momentum Move (MDMM). Then they rallied strongly as the scenario of perceived resilience of US economy gained strength. And USD/JPY rose as well as the scenario of GPIF portfolio changes and the surprise BoJ extra stimulus kicked in. How did I structure part of my portfolio for the macro outlook?
Well, for most of this year, I have around 30 – 40% of my portfolio in a few select equities, that I hold through the retracements in the markets, because I still think the bull market is intact, even if the S&P drops -5% or -10%, due to the stimulus from the low bond yields and the lower gasoline prices, etc as I wrote in the macro outlook. Then I trade S&P futures tactically on an intraday or swing trade basis. So when the S&P fell almost -10%, I was able to capture a small part of the move by shorting S&P, to help hedge my equity portfolio and also profit from the move lower. Then for currencies, I caught part of the EUR/USD prior down move.
Some moves I anticipated but miss out on. Like the NZD sell off. I believe I talked about the macro imbalance and that it was probably going to fall, but I covered my short too early, and then the price collapsed.
For all traders, here is what happens:
They anticipate some things, they make a lot of money on them as they timed it well and put big position size on them.
They anticipate some things, they make a little bit or moderate amount of money, as their timing was a bit off and/or they had smaller position size
They anticipate some things, but they missed out on them, as they could not find the proper timing, or they were distracted, or they were busy with another trade, or a million other reasons.
They anticipate some things, but they lose money on them, because they had poor timing or got shaken out.
I would say the most important is to think in terms of scenarios and “macro pressures” instead of time frames and how long things you can last. To raise your awareness of what is the market’s thinking in the present moment, and what scenarios can cause it to change for the bullish or bearish side. You do a bit of that how long is the analysis good for, as you have a volatility mindset of the One Day Volatility Explosion, Multi Day Momentum Move, and Global Macro Move.
Just because I said I don’t see anything in the AUD or NZD, etc, doesn’t mean there are no opportunities there. It is based on my interpretation of the information up to that moment. If some part of the scenario or macro situation changes, then they can get volatile. There may also be opportunities to fade some stops, or other intraday moves related to news, etc.
So with the macro outlook I am trying to identify more the macro moves that can last a few days or weeks, though, by their very nature, the ones that last a few weeks, occur less often (less maximum opportunity set as I teach), so there are less signals.