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Often time global macro trading firms will be accused of being nothing but a commodity trading advisor with a different name. While there are a few similarities the truth is that nothing could be farther from the truth. Commodity trading advisors are almost exclusively systematic technical traders. This means that they use charts and automatic entry exit signals to buy sell and sell short. In fact the primary edge in most of these firms is their risk management algorithms and not their knowledge of why it happened.
Macro trading is similar to commodity trading advisors because most of them also are heavy users of technical analysis. Technical analysis is the study of price and volume.
Global macro trading firms also use a lot of fundamental and sentimental analysis in order to determine what to trade. Most funds want a real reason as to why something should happen and not just that it is happening. They still use price action it is just that they have it backed up by the market fundamentals and market tone to give them better odds and allow them to adjust their exposure accordingly.
Probably the most famous example of using technical as well as fundamental analysis is when George Soros and Stanley Druckenmiller broke the bank of England. No they did not actually break anything. But they did make over a billion dollars in two days. Without fundamental analysis this would not have been possible.
What happened is that the bank of England did not want to raise their interest rates or float its currency. But the reality is that you can not support a currency indefinitely without doing major damage to your economy. So at some point England had no choice in what happened.
Eventually the bank was forced to devalue the currency and in two days time the Soros funds were able to bring in more than a billion dollars. This was not a bad trade for a few days work.
This trade essentially encompassed something that another great trader Michael Marcus who once said: I think the secret is cutting down the number of trades you make. The best trades are the ones in which you have all three things going for you, fundamentals, technicals, and market tone. If you can restrict your activity to only those types of trades then you have to make money in any market under any circumstances.
Trading is hard enough as it is you do not need to make it even harder by fighting the underlying market moving factors. Learn and use all forms of analysis so that you can be a better global macro trader.
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