Flash calls his fund a 'micro-macro' fund because he looks for macroeconomic trends and trades them with microscopic amounts of money. This enables him to stay relaxed. Trading is a way of figuring out how things are working in the world, and as he’s not reliant on it for all of his income, he can afford to make some stupid mistakes. Which he has done plenty of.
Micro-Macro Trading
Flash Rabbit here, delighted to be given a paddypowertrader podium from which to pontificate. paddypowertrader are inviting clients to contribute blogs and share a few thoughts on spread betting – and I have the honour of being the first.
I thought I’d spend the first blog explaining how I trade. If you read the comments on these blogs you’ll know that I often like to try out the opposite view to the consensus. My biggest successes this year have come from thinking beyond what’s directly in front of me on the screen and trying to work out the bigger economic picture.
I like to think of myself as a ‘micro-macro’ trader; let me explain. Basically, I look for the big economic themes and trade accordingly. I’m not much interested in making quick, dirty daily profits (not that there’s anything wrong with that). Rather I try to build up a picture over a longer timeframe and run with my trades.
I deal with the risks of this approach by trading in very small amounts. That’s why I call it ‘micro-macro’ trading – micro because it’s about small money, macro because I’m looking for the big macroeconomic themes. What I’ve found (and I’m learning all the time) is that small positions run over long timeframes – weeks or even months – can lead to big profits. But it takes good judgement, lots of information and nerves of steel to stay with a view, especially in the vicious and volatile markets we’ve had this year.
As my nom de plume implies I like to work fast, which is just as well in this crazy market. It’s also another way I deal with risk – I scale up my trading quickly if I’ve got what looks like a winning angle and I’ll pull out even faster if it looks dodgy.
Another feature of my trading is that I’ll trade long or short across a lot of different asset classes. I’m not sure whether that makes me brave or stupid (or both) but in the last few months I’ve begun to develop the confidence to run a full ‘book’ of trades.
So, I happily trade small amounts of equities, indices (mainly US and UK) and currencies. Oh, and I also make the odd foray into commodities – mainly gold, ‘cos I can’t handle the large stakes and high volatility of the oil market.
The beauty of spread betting is that you can build up a diverse portfolio of positions with relatively small amounts of cash. And if you get the macro call right – (for example when I realised the commodities bubble might burst in late June) you can begin to make some serious money. Even at £1 a point.
Theme Of The Week?
So, how is my micro-macro approach being implemented at the moment? This week I’m looking for a return of risk appetite – i.e. people being willing to buy – and some pressure for re-inflation. What started me thinking this way is that my gold shorts have become progressively less profitable, which is a signal of some potential reversal in the strength of the dollar and in the deflationary trend that we’ve seen over the last three months. So I’m trading accordingly.
I’m pretty long equities, but in small amounts, and I’ve gradually been buying up equity long positions for the last two weeks. 90% of these are protected by stops 5% to 10% above the entry point, so I hopefully can’t won’t too much money if the market decides to have a shuddering reversal (which wouldn’t surprise me given the grim economic background). I’ve been particularly interested in large cap consumer stocks, some financials, and a few mid-caps that I follow, but I’ll say which ones in a later blog.
I don’t have much of an opinion on currencies right now, but just as I was half way through writing this blog on Sunday night I bought a bit of EUR/JPY from 12664. Looking at the longer term chart, EUR looks pretty oversold against the yen, that ‘flight to safety’ currency. EURJPY is a bit of a play on re-inflation and risk appetite returning to the market. And the Japanese authorities don’t want the yen getting any stronger, as it’ll just mess up their economy, heavily dependent on exports, even more.
The other major pieces of my macro jigsaw have been the cut in interest rates (spectacular in the UK, and it will have an impact on consumers/householders’ pockets), what Obama/the policymakers may or may or not do, the big international finance summit this week, more muttering about tax cuts in the UK, and the fact that the Chinese government just announced some big infrastructure/stimulus spending.
On that last piece of news and linked to the fact that they made £8bn profit despite £10bn of writedowns, I took a small long position in HSBC. And I’m thinking about buying some gold, but not quite yet.
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November 11th, 2008 at 5:07 am
I recently came across your blog and have been reading along. I thought I would leave my first comment. I don’t know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.
Betty
November 11th, 2008 at 2:45 pm
Well, a pretty inauspicious call for a first paddypower trading diary. Glad I didn’t succumb to my urge to buy gold. Other than that, I got chucked out of most of these trades for paltry profits – EUR/JPY didn’t work – ramped up, I should have taken some profits at the top – and then it plummeted yesterday afternoon; I’m close to my stop on HSBC, and it’s looking decidedly dicey out there. Not much fun.
November 11th, 2008 at 4:46 pm
Hey Flash,
Nice first blog, look forward to seeing more.
Do you think that infrastructure spend in China might help stop the rot in commodities stocks?
November 11th, 2008 at 5:09 pm
Interesting question. Short answer is no – I don’t think we’ll see a sustainable revival in the miners until we see some signs of sustained global recovery. If you look at the 3 and 4 year charts on the miners they could easily drop back another 25 – 40%. For the last couple of weeks I’ve been focussing on large cap consumer stocks but I’m on the verge of selling them off too…In general I’m keener on being short of mining stocks than long them. Although I picked up some BHP Billiton a couple of weeks ago, I’ve already sold off half of them.
On the other hand, some of the miners look very cheap, but if their earnings fall off and demand continues to collapse not sure China can manage to keep them going on its own. The other thing is that they are also getting crunched by liquidity problems – forward orders collapsing, no-one is lending so inventories are getting gummed up, production falling off, and no-one wants to hold more stock than they can sell as they can’t finance the wholesale cost of digging out, shipping buying in and holding commodities. Underneath the commodity market, amidst all the speculative froth, is actually orders for physical delivery. And I heard a nasty bit of gossip about a certain metal magnate who might be technically bankrupt the other day – according to this particular source he’s financed his lavish global lifestyle – the ten houses, the yacht, the jet etc – by borrowing against the value of his holdings in his international empire; his stocks have tanked around 70% and the forex market has caned him as well. As one oligarch goes, so go many others…
November 11th, 2008 at 5:35 pm
rolly says very well written and interesting blog read all of your blogs thanks
November 11th, 2008 at 5:38 pm
I think we might see a whole raft of olly’s go in the next six months; there’s only so many gangsters the Kremlin can prop up.
Evidently not your cup of tea, but i think there is a lot of opportunity in some of the mining equities for fleeting trades over a trading period of a couple of days. There’s still a bit of frightening volatillity in them though, so like so many other trading areas, it’s about holding your nerve. There could also be a big opportunity for longer trading periods, if yo can afford to keep your cash in for a while. Not too many of us can though! cash is king, as is being being said quite a lot these days.
Just as a by the way, do you have an opinion about where the bottom is for the indices, or do you think it’s folly to look for it at the moment, amidst all the noise that’s flying around?
November 11th, 2008 at 9:00 pm
Someone on FT Alphaville had a good phrase the other day – ‘only monkeys pick bottoms’ which made me smile…but I was hoping that we had seen a bottom for 2008, which is one of the reasons why I’ve not completely abandoned my long positions. I don’t really have a view – Ken might – FTSE has held onto the 4200 – 4300 level pretty admirably I think which is why I’m staying positive and net long right now. If it can hold this level to the end of the week and the outcome of the G20 summit then I”ll be staying long. But it’s a tough call and you could easily see this house of cards collapsing very fast.
I agree that you could catch a lucky break with the miners and there are some great swings on those stocks – it’s just I’ve not had time to babysit the screen, which is what you need to do if you’re going to go for that particular ride.
November 12th, 2008 at 6:41 pm
Macro Man, for one, has tried to separate macroeconomic policy drivers from microeconomic drivers. The micro economic case for policy relief is fairly strong, as a market fairly central to the entire financial system (and by extension the economy) has more or less ceased to operate.
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December 16th, 2008 at 6:33 pm
Couldn’t a macro approach be applied to day trading Forex? Instead of jumping in and out of the market all day, just make one trade in the direction of the trend, set a stop loss, and get on with life? Use daily bars to decide which direction to trade in.