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AlphaBrain
book

AlphaBrain

by Stephen Duneier
February 2019
Intermediate to advanced content levelIntermediate to advanced
304 pages
7h 38m
English
Wiley
Audiobook available
Content preview from AlphaBrain

Chapter 15How to Stop Losing Money

How to Stop Losing Money on the Right View

In the global macro community it's fairly common to express a general view on commodities, or even a specific one, by positioning via a highly correlated instrument. Let's say you are bullish on oil, for example, you might get long one of the traditional commodity currencies such as the Canadian Dollar (CAD), Mexican Peso (MXN), or Russian Ruble (RUB). Looking at the charts in Figure 15.1, it would seem that really any of these would make an excellent proxy.

2 Commodity currency charts, both displaying 2 fluctuating curves in a descending manner representing WTI (light shade), and USD per CAD (top graph) and USD per MXN (bottom graph) (dark shade). Commodity currency chart displaying 2 fluctuating curves in a descending manner representing WTI (light shade), and USD per RUB (dark shade).

Figure 15.1 Commodity currency charts

SOURCE: Bija Advisors.

These are the kinds of charts that salespeople and analysts like to include when making trade suggestions for good reason. By appealing to our inherent desire to simplify what is a rather complex world with a nice, neat, coherent story, in which A leads to B and B leads to C, they get us to take action. Unfortunately, neither the world, nor our investment mandates work so linearly, and that creates some real problems. It is what often leads to us getting our view right while simultaneously experiencing losses.

There are a couple of key issues we are dealing with here. First, you have to not only get your view on oil right, but you also have to do so both in the long run and the short. ...

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Publisher Resources

ISBN: 9781119335566Purchase book