![]() However, their interpretation is not always straightforward and usually subject to statistical adjustment, evaluation in economic models, and expert “commentary”. Most macroeconomic data are public information and freely provided by government institutions. Also, in most economies, nominal GDP growth and terms of trade are related to the outlook for corporate earnings. For example, in countries with standard monetary policy regimes, inflation and operating rates are related to short-term interest rates and discount factors. Macro trends here are defined as time series that characterize states of the broader economy that are plausibly relevant for market prices. For pure abstract trend following it does not matter if one trades a stock, a crypto-currency, or a commodity future. Moreover, trend following can principally be applied to all types of traded contracts. What one does not need is a detailed understanding of contracts, valuation, or market and macroeconomic conditions. ![]() ![]() All one needs is history and feed of market prices. There are popular choices, such as the 50-day and 200-day moving averages, but ultimately the choice will depend on the individual…A common moving average strategy is to look for crossovers between two moving averages.”īasic trend-following is cheap and simple to implement. By doing so, it creates a smoothing effect on the price data, producing a single line that can help traders identify trends. Popular trend trading indicators include moving average, relative strength index and average directional index… a moving average indicator finds the average price of an asset over a given timeframe. “The most common trend trading strategies use technical indicators. This is the level of trend following from which we as traders…operate…Its essential elements…are to initiate positions based on the perceived direction of the trend, to hold positions based on the perceived direction of the trend, and to liquidate positions based on the perceived direction of the trend.” The other level of trend following is…to design intelligent, premeditated responses to market action. At this level the masses have always been trend followers, not only in financial matters, but also in terms of music, art, clothing and basic world-views. It is at one level a phenomenon of the human psyche…a burst of conformity to innovations in our immediate environment. Trends can be upwards, downwards or sideways…The longer the direction is sustained, the more qualified the trend becomes.” “A trend is the general direction in which market values or the price of an asset evolve. This post ties in with this site’s summary on information efficiency. Yet, the links are not necessary for understanding the content of the post. Morgan Markets website and require user credentials. Some links for data access and documentation refer to the J.P. The below post is based on proprietary research of Macrosynergy. Two combination methods are market information enhancement of macro trends and market influence adjustment of macro trends. ![]() Reason and evidence suggest that macro and market trends are complementary. Due to this precision, they serve better as building blocks of trading signals without statistical optimization and are easier to predict based on real-time information. While market trends are timelier, macro trends are more specific in information content. They are more expensive to produce from scratch and generate value due to rational information inattentiveness. Macro trends track relevant states of the economy based on fundamental data. Market trends are relatively cheap to produce, popular, and plausibly generate value in the presence of behavioral biases and rational herding. Classic trend following is based on market prices or returns. ![]()
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