Someone recently asked me if obsessing over FOMC announcements, Non-Farm Payrolls reports, geopolitics and other macro news is important for traders.
My answer might surprise you: unless you’re actually a dedicated macro trader – which is highly unlikely if you’re reading my stuff – it almost certainly won’t help your trading.
Let’s start with what we know about big macro events, generally.
One thing we can be quite confident in is that the market is predictably more volatile around big events.
I ran the numbers on SPY volatility during FOMC days versus regular days. It turns out that it’s about 20% more volatile on FOMC days:
This presents us with a choice: we could either do something about that (such as cut size), or we can just accept that tomorrow is going to be twenty per cent more volatile than usual.
It’s trivial to form a decent view on volatility.
But I don’t believe that knowing things about monetary policy or the economy could possibly lead me to predict the market direction around an FOMC event.
There is precisely zero chance of someone like me having any edge in predicting that based on interpreting the macro news.
Here’s how I think about the importance of keeping abreast of macro news and events in a nutshell:
- Know when the big events are happening. One thing you have some control over is how much risk you want to have on. And if you know that volatility is likely to spike, you might reduce your exposures a little. To be honest, I usually don’t – I just accept the extra volatility – but at least you can make a deliberate choice.
- Don’t waste time trying to predict outcomes. The market is way better at that than you or I. You’re much more likely to get paid by doing something useful that the market values (providing liquidity, smoothing out seasonal or structural effects, etc.) than outwitting the broader market.
- Accept that extra volatility is a double-edged sword. It’ll work in your favor half the time and against you the other half. That’s just how it goes.
Of course, there’s nothing wrong with staying informed.
I’m partial to certain newsletters myself!
But I would never kid myself that these make me a better trader. It’s not my edge.
So far, I’ve been a bit negative and told you some things that won’t help your trading.
So here are some things that absolutely will help your trading and are deserving of your attention:
- Understanding what you can and can’t control (and obsessing about the former and accepting the latter).
- Trading multiple uncorrelated edges.
- Knowing why your edge exists and why you can exploit it (if you can’t explain this in a couple of sentences, you probably don’t have an edge).
- Doing the data analysis grunt work to help you understand your edge.
- Being deliberate about risk allocation (without obsessing over precision).
- Having solid operational processes for managing your trading.
Personally, I barely read financial news. It’s not that I don’t care (OK, maybe a little because I don’t care), but because I don’t think it’s all that important for my trading.
I do keep tabs on when big events are happening. Elections, FOMC meetings, even Nvidia earnings (because it can mess with SPX volatility).
But I don’t need to know the details. I’m not trying to outsmart the market on macroeconomic trends – I just take note of how these events typically affect volatility.
The key points are:
- Know when big events are coming so that you’re prepared for volatility spikes.
- Don’t waste time trying to predict the outcomes of specific events.
- Focus on managing your exposures and risk.
- Spend your energy on things you can actually control – your processes, your risk management, understanding your edges, and finding more things to trade.
Remember, good trading isn’t about having a crystal ball. It’s about doing useful things, taking on risks that others shun, and managing those risks well.
If you find yourself worrying about the outcome of macro events, chances are you could benefit from focussing more on the things you can actually control.
