Chasing Macro Data
Guest Article
Below, you will find another guest article, which explores the risk takers’ journey in interpreting and trading macro data. We have all been there. Some components of acting swiftly after data points release us from an emotional burden and highlight the stark contrast and never-ending battle of trading the present “feeling” for the future reality.
It outlines in my mind what macro is all about. Trading after the fact of backward-looking data can by definition rarely yield positive alpha. It is also important to note why I think day trading is futile, at least from a macro perspective. If you are a purely technically driven trader chasing minute swings, go for it. This just isn’t macro in the traditional sense to me.
I hope you enjoy the article as much as I did.
Being able to read macro data is the way to enter the microdata room without the presumption of knowing what we will find there.
The release of important macro data forces us to live with and face the monster (the market), which, when it arrives with all its lightning and storms, appears even more incomprehensible and mysterious. While waiting for release, we are all disciples trying to grab the best seats to make the least risky profit possible.
First of all, how can the wait for the release be filled?
As financial operators, we constantly run the risk of being overwhelmed by the void we feel when we find ourselves in the limbo of waiting and it is at this precise moment that many of us run the risk of filling this void with the wrong decisions.
For example, some think that buying or selling a put or a call at the last moment can satisfy that thirst for serenity with which we always want to accompany our profit/loss statement. Sometimes, we think that an unsuspected mystical revelation at the last moment can somehow cover the precariousness of the reasoning that brought us there.
The market is an inexhaustible showcase of financial products (all strictly for sale) and solutions (all within reach) whose ultimate aim is to make inroads into the emotional/psychological weaknesses of the risk taker (weaknesses which are amplified by the more or less large size of the trade that she or he has put in place).
In truth, the release of important macro data forces us to experience emptiness, terror, inner turmoil, the awareness of our finitude, and the certainty that loss is always around the corner.
At the same time, the search for a hedge represents a painkiller for financial operators, a way of alleviating the tremendous impact (which is about to arrive) that arises from the macro data landing on the runway of our Bloomberg platform, causing frenzied volatility.
The best risk-takers manage to occupy the best positions on the market at the best time and the most reasonable price, but the occupation of that specific position is the result of a visionary process which is the result of an awareness that the portfolio manager bestows on himself itself in “the carpet of time that flows naturally” and not the fruit of an awareness that the money manager bestows on himself on “the woollen thread of dying time.”
What does this mean?
Einstein once said that “imagination is more important than knowledge”.
But why?
I believe that imagination is more important than knowledge because “imagination can imagine knowledge, but knowledge can not know imagination”.
Haunted and put in check by the showcase of financial products and all the possible solutions, many portfolio managers postpone the moment of choice while waiting for the macro data. When they are forced to make it (the choice), they bleed themselves by dividing this choice into many different choices to spread the risk of error. Still, exposing themselves to the frenzy dictated by fear, they abandon themselves to purchasing hedges at crazy prices that cover previous hedges.
This does not mean that the successful portfolio manager is a suicide bomber who launches himself at the enemy bare-chested and with an olive branch in his hand. The successful portfolio manager also hedges his trade based on a visionary process that leaves no room for emotional precariousness dictated by fear and insecurities. He is constantly driven by a trading philosophy outlined by a detailed plan, not a frantic instinct. Each action is performed only and exclusively at the pre-established moment.
The successful trader instead thinks that it is his job to make a choice that is not divisible. The successful risk taker sees the macro data for what it is and not how it appears to him; he imagines the truth of macro data in time and is prepared to make consequential choices, and his trade always concerns the present before the future because he knows that there is no table without legs, nor a bicycle without wheels, nor a harvest without sowing.
The successful money manager can be recognized not by the trade he puts in place but by how he puts it in place. The successful portfolio manager does not think that a particular trade is his exclusive property; she or he knows that nobody can claim rights on any trade because the trade is free to go wherever it wants, being the legitimate son of an indisputable father named MARKET.
Every trader must constantly ask herself if she is relating to the macro data with the logic of domination (I master this trade, and the trade will go where I say the trade should go) or if he is relating to the macro data with the logic of accompaniment (I accompany this trade by remaining one step behind him because I know that it is not the size (humble or arrogant) of my purchasing/selling power but the will of the market.
Let's use the following image.
“Look at the fig tree and all the plants; when they already sprout, looking at them, you understand for yourself that summer is now near."
The key to discerning the macro data and the consequences that arise from its release is given by the naturalness of the event that occurs before us.
The above quote seems to offer a key to discerning the image of the fig tree. Here, we have a plant that germinates and manages to bear fruit without going through flowering. The fig has no apparent beauty, but it produces very tasty fruit.
We can translate this interpretation and ask it to accompany us in our macro world.
Like the fig, macro data also has no apparent beauty, but it is the only kind of financial data that can bear real and lasting fruit. If the risk taker masters the macro data, he can ride the wave capable of swallowing thousands of pips and basis points and, in this way, goes well beyond the undertow desired by the scalper on duty. The macro data offers us the possibility of having a pure trading experience in which the market places itself in front of financial operators, showing the movements of the columns of his temple.
Ultimately, macro data forces us to finally look at things for what they are and what they are becoming. It requires us to see the present as it transforms into the future, and in the same way, it announces to us that that image of the future is not yet the future but only a semblance of the future.