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Running Multi Strategies in a Macro Trading Portfolio

By: David Taggart

Macro trading is one of the most flexible trading styles in existence. As a macro trader your job is to focus on the best risk to reward opportunities you can find regardless of whether that opportunity is in domestic fertilizer companies or in Namibia government bonds. The idea is that it is important to cast a wide net so that you can find the best opportunity.

This of course brings us to running multiple strategies. This benefits you in several different ways. Using multiple strategies will allow you to better follow and actually find trades in different markets. Running multiple strategies will also allow you to get better diversification.

Anyone that is taking a macro trading approach can benefit from different types of diversification. Macro already looks at different asset classes such as equities, fixed income, commodities, currencies, and real estate. But there are other types of diversification as well. You can diversify across different strategies within each asset class as well as using strategies that work on different time frames.

If you have strategies that look at the next few days, some that look at the next few weeks, the next six months or so, and then strategies that are very long term in nature you will be able to capture alpha everywhere that is presents itself. This will allow you to generate more consistent returns while taking on less risk which is something that we all want.

So what are some of the different strategies that you can run? Here is a list although it is not exhaustive. Relative value fundamental equity, special situations, event driven, distressed, currency arbitrage, long term trend following, convertible arbitrage, options arbitrage, closed end fund arbitrage, fixed income arbitrage, capital structure arbitrage, statistical arbitrage, volatility trading, and reversion to the mean. Using a few of these strategies in addition to plain vanilla directional trading can enable you to capture more alpha then you otherwise could. They also let you find the best risk to reward opportunities no matter what you are trading.

Most traders find that they are better able to follow multiple strategies and multiple markets by building different models. At most global macro funds as well as our service traders use several different software programs as well as a large number of models that are tracked in Excel and we are not alone. Most global macro funds both large and small run multiple model driven strategies. The simple reason is because there is only so much time in the day. Since we only have 24 hours in the day and only have two eyes, by using software we are able to spot far more inefficiencies then we would be able to spot on our own.

Article Source: http://www.bluearticles.com


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Systematic Global Macro Trading at The Macro Trader

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