Contents 1. Preface 2. Part One: An Overview of Global Macro 1. Chapter 1: Surveying the Global Macro Landscape 1. Types of Global Macro Strategies 2. Return Profile and Allocations 3. Hedge Funds and Global Macro 4. Summary 2. Chapter 2: Trading Process, Sizing Trades, and Monitoring Performance 1. Maintaining a Stringent Process 2. Objectivity and Bias 3. Taking Losses 4. Position Sizing 5. Unit Size 6. Volatility Adjusting Position Size 7. Risk/Reward 8. Correlation 9. Gap Risk 10. Position Sizing Sheet 11. Thematic Trade 12. Sharpe Ratio 13. Sortino Ratio 14. Drawdowns 15. Value at Risk (VaR) 16. Risk Utilization 17. Stress-Testing 18. Monitoring Performance 19. Trend Analysis 20. Bloomberg Shortcuts 21. Summary 3. Chapter 3: BackTests, Queries, and Analogs 1. Simple BackTests and Queries 2. An Example of Building a Query 3. Historical Correlations and Analogs 4. Summary 4. Chapter 4: The Building Blocks of Global Macro Trading: The Importance of Equities, Fixed Income, Foreign Exchange, and Commodities in Global Macro 1. The Four Product Groups 2. Assessing the Relationships between Assets 3. Summary 5. Chapter 5: Technical Analysis 1. Strengths and Weaknesses of Technical Analysis 2. Types of Charts 3. Volume and Open Interest 4. CFTC Positioning 5. Trend 6. Moving Averages 7. Bollinger Bands 8. Reversal Patterns 9. Head and Shoulders 10. Trend Lines 11. Triple Tops and Bottoms 12. Continuation Patterns 13. Triangles 14. Oscillators 15. Elliott Wave Theory 16. Parabolics 17. Seasonals 18. Cycles 19. Crowd Psychology and Contrarian Views 20. Chartered Market Technician (CMT) 21. Bloomberg Shortcuts 22. Summary 6. Chapter 6: Systematic Trading 1. A Brief Definition of Systematic Trading 2. Framework for Constructing a Systematic Model 3. Assets or Product Groups 4. Strategies 5. Factors 6. Risk Factors 7. Risk Premia 8. Risk Parity 9. Summary 3. Part Two: Global Macro Trading Foundation 1. Chapter 7: Foreign Exchange in Global Macro 1. The Role of the U.S. Dollar 2. Trading Currencies 3. Currency Regimes 4. Valuation Techniques for Foreign Exchange 5. Bloomberg Shortcuts 6. Summary 2. Chapter 8: Equities 1. Equity Indices Overview 2. Equity Derivatives 3. Valuation Techniques for Equities 4. Bloomberg Shortcuts 5. Summary 3. Chapter 9: Fixed Income 1. Funding/Money Markets 2. London Interbank Offered Rate (LIBOR) 3. Interest Rate Swaps 4. Federal (Fed) Funds 5. Overnight Indexed Swaps (OIS) 6. Forward Rate Agreements (FRAs) 7. U.S. Fixed Income Futures 8. Sovereign Credit 9. Sovereign Curve 10. Curve Inversion 11. Credit Default Swaps (CDS) 12. Exchange Traded Funds (ETFs) 13. Bloomberg Shortcuts 14. Summary 4. Chapter 10: Commodities 1. Supply Drivers 2. Demand Drivers 3. Ending Stock 4. Contango and Backwardation 5. CRB Index 6. Return and Volatility 7. Energy 8. Natural Gas 9. Precious Metals 10. Industrial Metals 11. Agriculture 12. Bloomberg Shortcuts 13. Summary 5. Chapter 11: The Role of Central Banks in Global Macro 1. Monetary Policy Goals 2. Tools Used by Central Banks 3. The Impossible Trinity 4. Monetary Base 5. Money Supply 6. Reserves 7. Zero Lower Bound and the Liquidity Trap 8. Quantitative Easing 9. interpreting central bank communication 10. Central Banks 11. Bloomberg Shortcuts 12. Summary 13. Appendix: Fed Programs during the Financial Crisis 6. Chapter 12: Economic Data Releases and Demographics 1. Measuring Growth 2. Inflation 3. Employment and Population 4. Balance of Payments 5. Government Indicators 6. Consumption Indicators 7. Industry and Services Indicators 8. Demographics 9. Bloomberg Shortcuts 10. Summary 4. References 5. About the Author 6. Index 7. End User License Agreement List of Illustrations 1. FIGURE 1.1 Global Macro versus S&P 500 from January 1995 to September 2013 2. FIGURE 1.2 (a) Performance of Global Macro during the Top Five Losing Quarters in SPX since January 1995 and (b) Performance of Global Macro during the Top Five Best Quarters in SPX since January 1995 3. FIGURE 1.3 Changes in Pension Funds’ Allocations to Different Hedge Fund Strategies from 2009 to 2012 4. FIGURE 2.1 Sample Normal Distribution 5. FIGURE 2.2 Euro Stoxx 50 Chart March 15, 2013 − March 18, 2013 6. FIGURE 2.3 10-Year Japanese Government Bond Yields 7. FIGURE 2.4 Nonlinear Risk Utilization 8. FIGURE 2.5 Baseball Hot Spots in the Strike Zone 9. FIGURE 3.1 British Pound Intraday Performance on July 5, 2012 10. FIGURE 3.2 FTSE Intraday Performance on July 5, 2012 11. FIGURE 3.3 Dow Jones Industrial Average Price Chart from July 2011 to December 2011 12. FIGURE 3.4 Analog Period Time Series 13. FIGURE 3.5 U.S. Dollar Index Historical Correlations to 180-Day Analog Period 14. FIGURE 3.6 Analog Period versus February 12, 2007 through October 20, 2008 15. FIGURE 4.1 Foreign Exchange Market Turnover by Currency Pairs 16. FIGURE 4.2 Canadian Dollar versus WTI Crude Oil 17. FIGURE 4.3 Japan Debt to GDP Ratio and 10-Year Japanese Government Bonds 18. FIGURE 4.4 Copper versus the Chilean Peso 19. FIGURE 4.5 Four Individual Assets from the Four Market Categories during the 2008 Financial Crisis 20. FIGURE 5.1 Line Chart of the S&P 500 21. FIGURE 5.2 Sample of a Single Bar on a Bar Chart 22. FIGURE 5.3 Bar Chart of the S&P 500 23. FIGURE 5.4 Sample Candlesticks 24. FIGURE 5.5 Candlestick Chart of the S&P 500 25. FIGURE 5.6 Major Japanese Candlestick Signals 26. FIGURE 5.7 Point and Figure Chart—First Steps 27. FIGURE 5.8 Point and Figure Chart 28. FIGURE 5.9 Arithmetic Scale and Logarithmic Scale 29. FIGURE 5.10 Dow Jones Industrial Average: (a) Regular Chart and (b) Lognormal Chart 30. FIGURE 5.11 Bar Chart and Volume of the S&P 500 31. FIGURE 5.12 Commitments of Traders Report 32. FIGURE 5.13 Gold CFTC Net Positioning of Noncommercial and Nonreportable Speculators 33. FIGURE 5.14 Nikkei Historical Price Chart with Trends 34. FIGURE 5.15 Bollinger Band Chart of the S&P 500 35. FIGURE 5.16 Sample Head and Shoulders Pattern 36. FIGURE 5.17 Sample Triple Bottom Pattern 37. FIGURE 5.18 Types of Triangles 38. FIGURE 5.19 Chart of Nasdaq in Broadening Top Formation 39. FIGURE 5.20 S&P 500 Bar Chart with MACD 40. FIGURE 5.21 S&P 500 Bar Chart with RSI 41. FIGURE 5.22 S&P 500 Bar Chart with Stochastics 42. FIGURE 5.23 Elliott Wave Basic Pattern 43. FIGURE 5.24 Zigzags in Elliott Wave 44. FIGURE 5.25 Flats in Elliott Wave 45. FIGURE 5.26 Corrective Wave (Horizontal) Triangles 46. FIGURE 5.27 Bull Market Truncation (Failure) 47. FIGURE 5.28 S&P 500 Chart with Fibonacci Retracements 48. FIGURE 5.29 Historical Price Chart of Silver, 1977–1980 49. FIGURE 5.30 Historical Price Chart of Gold, 1920–2012 50. FIGURE 5.31 Corn Seasonal Data, 1970–2010 51. FIGURE 5.32 Charts of Respective Markets when the Market Leader Had Their IPO 52. FIGURE 5.33 Chart of the S&P 500 during the October 1987 Crash 53. FIGURE 6.1 Construct and Framework of a Systematic Process 54. FIGURE 6.2 Efficient Frontier 55. FIGURE 6.3 Historical Total Return of Indexed Risk Parity—60% S&P 500/40% Barclays U.S. Aggregate Bond Index 56. FIGURE 7.1 Foreign Exchange Market Turnover by Currency as a Percent of Volume 57. FIGURE 7.2 Central Bank Holdings of Currencies 58. FIGURE 7.3 Currency Turnover by Market 59. FIGURE 7.4 Chinese Renminbi versus Chinese Renminbi 12-Month Nondeliverable Forward 60. FIGURE 7.5 Basket of Currencies in SDRs 61. FIGURE 7.6 Hong Kong Dollar Exchange Rate, 1935–2005 62. FIGURE 7.7 U.S. Dollar/Brazilian Real Price Chart 63. FIGURE 7.8 Brazilian Bovespa and Brazilian Real 64. FIGURE 7.9 Mexican Peso versus Mexico Five-Year CDS 65. FIGURE 7.10 Australian Dollar/Mexican Peso Cross versus Australia/Mexico Five-Year CDS Spread 66. FIGURE 7.11 British Pound versus Three-Month British Pound Risk Reversals 67. FIGURE 7.12 Canadian Dollar versus WTI Crude 68. FIGURE 7.13 2012 Country Debt to GDP 69. FIGURE 7.14 Big Mac Index 70. FIGURE 7.15 Australian Dollar/U.S. Dollar versus the RBA Rate/Fed Funds Effective Spread 71. FIGURE 7.16 Euro/U.S. Dollar versus Front Eurodollar/EURIBOR Spread 72. FIGURE 8.1 A Top-Down Approach 73. FIGURE 8.2 Absolute Price Chart of WTI Relative to Individual Energy Stocks 74. FIGURE 8.3 Equity Rotation in Sectors during Economic Cycles 75. FIGURE 8.4 VIX Annualized Average Daily Closing and Correlation to the S&P 500 76. FIGURE 8.5 Historical Chart of the VIX Index (Spot) 77. FIGURE 8.6 Payoff Structure of a Long Variance Swap Position 78. FIGURE 8.7 S&P 500 Historical Price/Book Value 79. FIGURE 8.8 S&P 500 Historical Dividend Yield 80. FIGURE 8.9 S&P 500 Historical Price/Earnings Ratio 81. FIGURE 8.10 S&P 500 Historical Free Cash Flow Yield 82. FIGURE 8.11 U.S. Historical Stock Market Capitalization as a Percentage of GDP 83. FIGURE 8.12 CRB Index Historical Year-over-Year Change 84. FIGURE 8.13 Five-Year CDX High Yield Index 85. FIGURE 8.14 Historical Chart of ISM Manufacturing PMI 86. FIGURE 8.15 Historical Price Chart of the Baltic Dry Index 87. FIGURE 8.16 Historical Chart of ARMS Index with 100-Day Smoothing 88. FIGURE 8.17 Conference Board Consumer Confidence Index 89. FIGURE 8.18 Australian Dollar Three-Month At-the-Money Volatility versus the VIX Index 90. FIGURE 9.1 Basic Fixed Income Universe: Overview 91. FIGURE 9.2 Inflation-Indexed Yield Analysis Bloomberg Screenshot 92. FIGURE 9.3 Historical Chart of LIBOR-OIS Spread 93. FIGURE 9.4 Market Pricing Factors on U.S. Fixed Income Yield Curve 94. FIGURE 9.5 Bloomberg Screenshot of U.S. Fixed Income Strip 95. FIGURE 9.6 Historical Chart of U.S. 2s/10s Flattener 96. FIGURE 9.7 Bear and Bull Flatteners