Profiting from Market Positioning

John Netto

The Protean Trader

Risk Disclaimer This presentation was created for informational, educational, and entertainment purposes only, and

should not be construed as an offer to provide investment advisory services nor to buy or sell any securities, futures, options, or currencies. The information herein is provided “as-is” and is not

guaranteed to be complete or current. No representation is being made that the use of this strategy or any system or trading methodology outlined will generate profits. Past performance is not necessarily indicative of future results. There is substantial risk of loss associated with trading securities, options, and futures—a trader may lose all or substantially all of his capital. Trading securities is not suitable for everyone. Futures, options, and currency trading all have large potential rewards, but they also have large potential risks. You must be aware of the risks and be willing to accept them in order to

invest in these markets. Do not trade with money you cannot afford to lose. The past performance of any trading system or methodology is not necessarily indicative of future results.

About Me

• Cross-Asset Class Trader

• Author of “The Global Macro Edge – Maximizing Return Per Unit-of-Risk”

• Raising money to help train and place service dogs with military veterans

• US Marine Corps Veteran (1993-2002)

• Foreign Language Enthusiast (Japanese, Chinese, Portuguese, Spanish)

• Based in Las Vegas, NV

Goals of Presentation

• Review key points and terms • Description of important resources • Plan of action for Part II of webinar

Copyright 2015, The Protean Trader, LLC

2 parts of this course:

• Part 1 will lay the foundation (outline resources and why I use them)

• Part 2 will explain and walk through how to use those resources

Review of Key Terms

• Market Positioning

• Market Position Measurement (MPM)

• MPACT Ratio

How do you measure Market Positioning?

• Market Position Measurement, “MPM” – The discount, or premium, the market is trading at based on the implied outcome of a future event, or series of events

• Example 1 – The EURUSD can be trading at a 75 tick, or 40 basis point discount based on the perception the FOMC will come out with a hawkish statement

• Example 2 – The 5 year treasury note can be trading at a 2 handle, or 15 basis point, premium based on the perception the Trump Administration will not get any tax plan passed

Trading at a discount?

Meaning of trading at a discount?

• Example 1 – The EURUSD can be trading at a 75 tick, or 40 basis point discount based on the perception the FOMC will come out with a hawkish statement – SPOT EURUSD is at 119.00, would be at 119.75 if perception over statement was neutral instead of hawkish

• If FOMC doesn’t come out with Hawkish statement, EURUSD will rally 75 ticks, effectively erasing that discount on the reprice higher.

Trading at a premium?

• Meaning of trading at a premium?

• Example – The EURUSD can be trading at a 150 tick, or 80 basis point, premium based on the perception the Trump Administration will not get any tax plan passed – Spot EURUSD is at 120.50, would be at 119

• If event does happen (i.e. meaningful tax reform), EURUSD will sell down 150 ticks to erase that premium

MPM Model – Euro Trade Example NFP Create probabilities around each outcome

Copyright 2017, The Protean Trader, LLC

MPM Model – Euro Trade Example NFP Part 2 – Establish price range based on each scenario being realized

Copyright 2017, The Protean Trader, LLC

MPM Model Math – Compute final MPM

Factors in Developing MPM and MPACT! Ratio

In This Course You Will Learn:

• What I Read, Who I Talk To & How I Use It ( My resources)

• Trading News: Event Selection with Specific Trade Strategies (ie THE FED)

• Combining Technical Analysis with Market Positioning

• Using Market Positioning to Locate the BEST Trades (All Asset Classes)

• Sentiment Indexes, Surveys and Spreads

• How to Calculate and Utilize MPM and The MPACT! Ratio

• Step-by-Step Strategy for Trading Big Events

Resources: What I read and who I talk to…

• Hedgeye • Track.com • Macro Man / Cameron Crise • Sight Beyond Sight / Neil Azous • Bloomberg Terminal / Bloomberg Briefs • Twitter • Wall Street Research • Government and Economic Websites • Google News Alerts • Prattle

Resources: Hedgeye

• Hedgeye is an independent research firm headed by Keith McCoulough started in 2008 and based in Stamford, CT

• They provide both institutional and retail research. Their retail product has tremendous value

• RTA signals give calls on major macro markets, sectors and individual stocks

• Everyone on this webinar has a free trial of all of this until November 16. After that it costs less than $3 a day.

Resources: Track.com

• Run by Bob Savage

• Former Managing Director of FX Macro Sales at Goldman Sachs

• Former Head of New York FX Desk for Lehman Brothers

• Daily opinions on the market

• Author of Chapter 16 – Identifying Blind Spots in a portfolio

Resources: Google News Alerts

• Google News Alerts google.com/alerts

• Receive daily or as they happen

• New Fed Chair

• North Korea Missile

• Republican tax plan

Resources: Bloomberg Briefs

• Simple synopsis of key econ and policy events of the week

Resources: Bloomberg Terminal

• Economic forecasts help establish consensus calls

• Whisper numbers

• Customized spreadsheets

• Backtester to use on events

• Surprise indexes

• Impressive 24 hour tech support that let’s you pursue a trading idea

• Interest rate probability calculator

• Amazing Instant Messenger (Bloomberg IB Chat)

• Costs about $2200 a month before exchange fees

• Reference page 154 of GME for my favorite functions and index of GME

Resources: Bloomberg Terminal – Bank of Canada September 6, 2017

Resources: Bloomberg Terminal – Bank of Canada September 6, 2017

Resources: Prattle

• Creates independent scoring on G10 Central Banks

• As a subscriber receive email alerts and access to API and 15 years of historical data

• They categorize scores into residual, raw, momentum

• Helps me measure sentiment

• Premium Institutional Product includes weekly “Cyborg Central Bank Analyst

• Follow on Twitter @prattledata

Resources: Prattle – Bank of Canada Sep 7, 2017

Resources: Prattle – Bank of Canada Sep 7, 2017

Resources: Twitter

• Identify key people on twitter

• Use mobile alerts for top people with market moving insight

• Takes maintenance to upkeep

• I use Tweetdeck (chapter 8 of GME)

Resources: Wall Street Research

• Wall Street research in general will be going through major shakeup

• For Central Bank events, GS, Societe Generale, MAQA are exceptional

• I pay less attention to their forecasting accuracy as I do their analysis and rationale

Resources: Excel and Smartdraw

• Smartdraw lets me create decision tree and flow chart of events($300 one-time fee)

• Excel let’s me compute probabilities

• Will email everyone who signed up a simple probably grid with an example so you can plug and chug for your own purposes

Resources: Excel and Smartdraw

Resources: Network

• Spent many years building this

• Track.com Idea Dinners are great

• Techniques to build a network in Chapter 8 and 18 of GME

• Key point is you have something of value to offer, get very specialized (eg trading the Nasdaq on options ex, biotech stocks, Bank of England governors, the Bund/TY spread) it doesn’t matter but know everything about that one thing and then share it with people

• Two keys to my success (identify talent and provide value in relationships)

When building a forecast: 8 steps 1. Unpack the question into components

2. Distinguish as sharply as you can the known and unknown components and leave no assumptions unscrutinized

3. Adopt the outside view and put the problem into a comparative perspective that downplays its uniqueness and treats it as a special case of a wider class of phenomena

4. Then adopt the inside view that plays up the uniqueness of the problem

5. Explore the differences and similarities between your views and others

6. Factor in prediction markets and other methods of extracting wisdom of crowds

7. Synthesize all of these views into a single vision as acute as that of a dragonfly

8. Express your judgement as precisely as you can, using a finely grained scale of probability

Market Positioning and Macro Narrative Budget:

1. Up to $400 a month ($4800 a year)

2. Up to $1,000 a month ($12,000 a year)

3. Up to $3,000 a month ($36,000 a year)

4. Up to $10,000 a month ($120,000 a year)

Budget: Up to $400 a month ($4800 a year) Spend 8-15 hours a week reading

1. Hedgeye Package (includes Real Time Alerts, Macro Show, Letter) ($75 a month)

2. Track.com full access ($100 a month)

3. Twitter – Key followers

4. Key Free Blogs (Macroman, FT Alphaville, Reference page 421 Global Macro Edge

5. Financial Times $45 a month

6. WSJ Online - $35 a month

7. Bloomberg US Econ Briefs - $597 annually ($50 a month) Free with Terminal

8. Smart Draw

Budget: Up to $1,000 a month

1. Everything from first group

2. Sight Beyond Sight by Neil Azous

Budget: Up to $3,000 a month (Up to $36,000 a year)

1. Everything in first two groups plus Bloomberg Terminal

Budget: Up to $10,000 a month (Up to $120,000 a year)

1. Everything in first three groups

2. Prattle G10 Central Bank Package ($3-4,000 a month)

3. Protean Trader Signal Service ($995 a month)

4. One-on-One Protean mentorship consulting (info@theproteantrader.com)

To Do List Part II of Webinar (NOV 15 8 PM ET) 1. Familiarize yourself with Hedgeye RTA Alerts and Macro Show 2. Read Sight Beyond Sight Newsletter and record notes about market

positioning (comes out 3-4 times a week) 3. Read at least two Track.com articles a week 4. Bloomberg Terminal users subscribe to Cameron Crise daily emails, non

terminal follow him on twitter @5thrule and he appears on BBERG TV 5. Enable Google News Alerts for three themes (Tax Reform, North Korea, New

Fed Chair) 6. Attempt to construct MPM for Tax Reform Plan 7. Read Chapters 2, 5, 8, 16, 17, and 18 of The Global Macro Edge 8. Buy book, Superforecasting by Phil Tetlock and read chapters 3-7 9. Email questions to info@theproteantrader.com (I will personally respond)

and follow me @JohnNetto (watch pinned tweet of Realvision Interview) 10. Play with Excel Probability grid and Smartdraw Software