While updating our models this weekend we thought it would be useful to show an example of one of our trading models.  As we have stated previously we use a very systematic process to find trading opportunities.  Half of our research time is spent building technical and valuation models that help guide us into and out of different asset classes.  The other half of our research is spent reading and talking to people looking for ideas.

One market that has been fairly good to us lately has been junk bonds.  We have a few different models that we follow to help tell us when the market is good and when it is bad.  This particular model looks at the price action in junk bonds as well as the yield spread to Treasuries to tell us when conditions are favorable and when they are not.

When we trade junk bonds we typically use the HYG IBOXX High Yield EFT which has good daily trading volume.  In the chart below you can see how our model did versus buy and hold.  While HYG fell by 37.2% from its peak our models worst drawdown was 5.48%, and while HYG is currently down over 24% from its highs the model is just a few percent from its recent high.

As you can see, using models can help you find and manage good investment opportunities. In a year in which most investors lost 30-50% of their wealth we were able to stay slightly positive with very low volatility.

If you are interested in learning more about what global macro trading is and what we look at then you may be interested in subscribing to our weekly newsletter. If you would like to learn more about what global macro is then sign up for our FREE Macro Trading 101 course.

Happy Trading,
The Macro Trader
Dave@TheMacroTrader.com

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