I was doing some reading about how managers approach finding ideas in the global macro space and I came up on a book (Asymmetric Returns by Alexander Ineichen) which briefly discussed some of the approaches mangers use to finding trade ideas. One of them was the feedback approach which is to play the downward trend as a bubble deflates and the snap-back during a recovery. There's been a lot of this going on lately (what with the credit crunch and equity rally, and oncoming bond crash) and I was wondering if this approach was still common at large global macro players today. I found an interview of guy who seems to use just this strategy (http://www.eurekahedge.com/news/11_july_Interview…) which is quite interesting.
Anyhow, I was wondering if any of you guys knew what I was talking about and if you had anymore real-life examples of people doing this, as well as how viable of a strategy you think this is.
Anybody? I archive.orgd my way to a pdf wich discussed this in a little more depth and it appears PTJ and Louis Bacon are the biggest exponents of this method due to their commodity trading background.
That sounds interesting, could you send me a link? Thanks.
http://tinyurl.com/2c6gnu4 It's a pdf.
Great article. I remember PTJ mentioning in an interview that he likes to play the tops and bottoms, rather than the bulk of the movement in the middle. I'm interested in hearing Bondarb's views on this.
I would be interested to see this interview because I think that most of the great macro traders take the exact opposite approach. Picking tops and bottoms is a very dangerous game because you will often find yourself on the wrong side of big, thematic trades. Think of how many people got crushed trying to pick the bottom in the banks in 2008-2009.
In general I think the article is somewhat interesting but not that substantive...yes, traders try to sell into bubble and buy once prices have started to come back but that is pretty obvious. Of course, knowing when a bubble has popped and when its done popping is pretty tricky business. I also have never heard the term "feedback approach".
The part about using models for currency valuation is also obvious...most traders know the fundamental valuations of the ccy's they trade based on widely used models and use that as part of their investment process. This info is widely available in the same way a stock's PE ratio is well known.
I also find the author's conclusions pretty dubious...since he wrote this article the exact opposite of almost everything he predicted has come to pass!
^Same here. Good find GB.
I think that was in market wizards Bondarb.
And macro, if I remember correctly I think PTJ said he usually missed the movement in the middle, hence his preference for tops and bottoms. This was of course, decades ago. Haha.
This sheds some light on the turns vs. the middle approach for PTJ: http://www.investingdaily.com/id/17995/paul-tudor-jones-best-momentum-b…
"Fade range-bound markets and follow trending markets."
As far as calling inflection points, the long-dated otm option approach of the guys I linked to in my first post seems more realistic. You can only follow the trend once you see it (when you options start killing it).
Good link goodbread, thx for that. Indeed in his October letter PTJ recommended literally picking the best asset classes from last quarter and buying them now so clearly he believes we are in "trend mode".
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