Macro Update – 06/05/2025

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It.

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Good morning, everyone.

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Happy Friday and welcome back to this macro session with our research analyst team. Welcome, Tim. Nice to have you.

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Good morning, ladies and gentlemen. And good morning, Fabio.

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Great to have you. It's been a while, but we are back and today we're gonna talk about risk management. So I'll let you go ahead. Take it away, Tim. Thank you.

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Yes. Yeah. Boys and girls, normally, macro update is a little bit different, I know, but like in April, we were talking about. Let's do a session about risk. Let's tell people, give them a little bit guidance, what they may have to watch to define and gage the risks that is actually in the market. And how does this affect maybe your trading? So this presentation is like already five or six weeks. Weeks old, but yeah, it's a little bit delayed, but it's still valuable, I think. But if you are watching this stuff today and cast this into the market that we had in, like April and May, I think in the end you will agree that's actually, yeah. Stuff you should watch. And sometimes I'm a little bit amazed not everyone does it. So, yeah, let's jump right into it. We are going over some mathematical stuff. I have also a few charts, and we have also a little bit from our models that can show you what's actually going on in terms of risks and how markets are moving. So first of all, we have two things that are pretty straightforward, but actually they define your outcome as a trader.

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So, of course, this is important for day traders as well. For myself, I do day trading as well. It has changed a little bit during the course of time. Now I do more like swing trades, like two, three, five days or one, two weeks, whatever. But if I enter day trades, I watch basically the same stuff. Right. Just on a different time frame, of course. So if you are a profitable trader or not is basically just mathematics. Right. Let's start with the risk reward ratio. And we have this little table over here that shows you which risk reward ratio on the left, 1 to 1 or down to 5 to 1. And your hit rate in percentage on the upper axis, 20, 30, 56%, shows you when you are profitable and when you are break even. This is important in a market that constantly changes in terms of volatility realized and yeah, implied volatility as well. How much the market does gives you. Right. If the ES is not moving at all, you will maybe never realize the 5.1 risk reward ratio. Right. So it. It basically does not make sense to set up this trade.

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The other hand, if you are just Trading risk reward ratio 2 to 1. A 30% win rate already makes you profitable. Right. So this table here represents of course a few extremes like 1 to 1 and 5 to 1, right. Personally, I do not know that much. Traders that are running a 5 to 1 percentage risk ratio, especially in day trading, you have to be. Yeah. Pretty confident. Pretty, pretty good. You also need a market where you can realize those ticks. Main takeaway from this table over here. Find a good speed, find a good sweet spot in the middle. Right? That's the reason why I put it down like this. Find the middle. Do not aim for those unrealistic trades where you get 10% more, 10 times more what you have actually risked into the market. Stick it to free, stick it to four, right. If you have a stable process and you just win like every third trade of it, you still make money in the pockets, Right? But we also lose money in the market. That's normal, right. Some say it's business expensive, their expenses. Some say yeah, that's actually the core of this business.

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To understand that you have to lose money for making money. And of course it's true. But always remember. And this is what the table on the left side shows. Drawdown in percentages and the right column says the return in percentages to get back to break even. Now the thing is we have, I think we have a lot of traders that are doing those. Yeah. Remote prop firm challenges. Let's put a name on it. Top step, Apex, my founded Futures, however this stuff is called. And the red rectangle in the lower part of the slide shows you actually the math behind all the stuff that I put down here. And you will realize pretty, pretty quickly if you are running one of those, yeah paper accounts where they suggest you like buying power of $50,000, you basically just have your draw down with the $2,000 maximum draw down before the account is closed. I think those numbers here are from top step, if I remember right. And it's actually insane because the returns you have to make if you are losing 50% of those $2,000, you have to make over 100% out of, yeah $11,000 that are actually left in your account after you hit 50% of your drawdown.

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And that's sometimes stuff or people are not realizing, to be honest, it's really hard to get back to break even. And it's also really, really hard to hit your maximum profit target, which I think is 3,000 in those accounts. So yeah, if you find yourself in a hole in terms of drawdown, stop digging that's pretty famous phrase, I guess. I don't know exactly who dropped it, but I picked it up years ago and it's yeah, pretty good. Evaluate the stuff you're actually doing because you're doing something pretty wrong. If you have like 50% drawdown size down, evaluate and maybe stop trading. Take a pause of it and yeah, always remember this little table on the left side and always ask yourself, can I risk 50 of my capital to make 100% to be break even and do this in the long run, right? Because in trading you can make like money one week and the next five, six weeks you can lose money if something is wrong or if you care. Actually suffering from different stuff that affects your trading. For me, when it comes to risk and how I approach markets, one thing that's crucial and one thing that I always look at is volatility.

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Right? We have different metrics of volatility here. And even when it comes to volatility trading, it's big, big jungle, really comprehensive asset class. But at least we can plot out for nearly every market volatility. It's a different story how to analyze it. But to be honest, everyone can pull up this chart here on Trading View where I have in green VIX for equity trading of course, right. The VIX also has other components like the nine day wix which is a little bit more shortterm. Even the VIX has a volatility index which is called the V vix, right? It shows you how volatile VIX is. Obviously there is volatility in gold, call it gvz. Same for oil, the OVX and the MOVE index for bonds. Well the stuff works a little bit different but in generally it works also if you are trading bond futures like this sedan said T said F, ZB or the Ultras with uv. It's not the worst idea to look at the MOVE index as well and a little phrase down here because I think we have always new listeners and always new viewers to overthink that stuff. Pull these charts up, pull them out, compare it to the history like what is different now in the market and at least you have a little bit of an idea how volatility is moving in the week that you are trading.

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How volatility was 1, 2, 3 weeks before or even a month before. The charts over here are showing you the April of 2025 with the beginning of the Liberation Day where we had the tariff announcement from Donald Trump. And as you can see this volatility is not just present in one asset class like in stocks it's present in nearly all of the asset classes. But of course stuff like gold does not showing up that much volatility like stocks are doing. But as you can see, volatility is always a big picture that is driving markets and it will also drive you risk. Right. This chart over here, the red and green hills and valleys is so so called book of depth index for I think it's es. ES future. This is technically and shows your liquidity. And how is liquidity in the market? It makes a huge difference if someone with a market order in ES puts on like a 50 lot and can move this index a few ticks just by clicking the market buy or the market sell or do this market participant or to move the index needs like 500 contracts. Right. Why is it like that?

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Usually elevated volatility shows us less liquidity in markets. If a market has less liquidity, it's yeah. Easy to move this market. Say it like that, whoever wants to engineer this move. But it's also a little bit more expensive for bigger market participants to show up and put their trades into the market. Right. Because they maybe get slippage on this trade. And it's kind of impossible for them like an ES to put on a 100 block trade market if they have with this market trade 2 or 3 ticks slippage. Right. Think about it. 2 ticks NES 25 dollars. 3 ticks $3750. Multiply this by hundreds and your trade hasn't even moved. But due to the slippage, the trade is already in the red. So what happens in high volatility environments? Liquidity dries out because people are staying out of the market. Okay. And with the chart over here you can see I have yeah. Roughly matched different states of liquidity with the Vix right. On the right side there's the Vix close 15%. You can see the liquidity is yeah, pretty, pretty good. Distributed on the sell and buy side which is green and red graph over here.

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Weeks of 19 there's already a little bit contraction. And I think that is the week of the tariff announcement. Yes, it is. Weeks 51 we peaked in this week. And you can see liquidity is drying out. It's no fun to trade in this environment. Especially when you are like a day trader and you have a really, really small account where a loss of $500 is actually a big, big problem for you because it's maybe 10 of your equity or something like that. So it's also a thing in terms of liquidity, how you're Approaching risk. Think here also of yeah scale down, size down. It's a good thing in futures. We have the micro contracts as well or right. They are just a tenth of the mini product. So it's always wise to think about this stuff and yeah change your approach over there. This website here is public available just how does it named CME Liquidity Tool. Just search this on Google, it will pop out. This website here. It's pretty straightforward and yeah maybe let's check it for different asset classes one time a week and you are good to go. I'm aware of the next point is not something everyone does but in my view it's kind of important track developments.

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There are some so many informations out there you can actually access. Made the easy Bloomberg article. Do you have a news feed like the one on the bottom here? Or even the economic calendar on the right side Even if you are not interested how fundamentals are moving and yeah what does it mean for markets? You can actually pick out those times from the economic calendar. Write it down and then say to yourself okay, if I want to trade today, like what is this Wednesday April 30th, I will not be in a trade 8:30am Eastern because we have some news pending some news coming out. We don't know how the market is reacting to this. So I want to stay out during this time or my trade has to be finished until this time. Right? So you are avoiding noise, you are avoiding problems within your trade because maybe you are. Yeah, right. With your trade, let's say you are long in the asset but you are not aware of the economic calendar and of the next date. And maybe this economic release affects your trade and you may get stopped out. Right. Because during those dates usually the market gets a little bit more thinner.

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Market participants are pulling limit orders out of the market and you can have some nasty price action. Right. So write this down as a little rule and you should be good to go. Now we are going over to some charts to some models where we can define our risk a little bit more. And I wrote down here each period requires a change in your setup. May it be a right or stop less trades or smaller size. So what does this means? This is the ES chart. A daily time frame. Daily time frame. Just to show you a very very simple metric which is the yeah. So called average true range. This is the red plot on the bottom of the chart here. And each column is obviously one day because the time frame is one day. Right. And I stick with it to a average rolling 10 to 20 days. Right. To show me a little bit how we are moving in terms of points. And as you can see, each of those developments actually requiring three different setups. That's the reason why I wrote setups in the chart here above. In the first one you may can easily work with a stop let's say in.

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Yes, like 20 ticks. Right. The second setup, the in the middle one, you might have a problem with this. Right. Your entry has to be really, really on point that the 20 tick stock may hold. And the third setup, this was the sole sell off after tariff announcement in April. And also the. The big, big recovery candle or because the taverns have been delayed for 90 days. All the stuff affects of course the average true range. Right. So this is a very simple way to put this in the chart. And you can see just by roughly eyeballing. Okay, I might have changed my setup. I might have, yeah, size down a little bit because if we compare the first setup where the red columns on the bottom are not nearing like 100 points and we are comparing this to the setup on the right, the ATR has yeah. Nearly doubled. Right. And you will never ever survive with a trade setup that you have used during these load times of ATR. This is a good example here. It's from Friday 3rd April. DES opened around 5400 with a com Asia session. EU has showed some selling which triggered some more selling and high world after the New York City open.

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And even on the daily chart with the ATR you can pretty easily spot how your setup may change. Change also when the market is open and also when views are hitting. Of course it is a indicator and indicators are always delayed. Like yeah in this example here for five minutes. But a classic setup would be USL equals the ATR multiplied by 1.5 or 2. So this is your initial. Yeah. SL setup for this then. It depends of course what you are running as a take profit. May it be two times more or three times more. But if you have already elevated atr you should be also able to. Yeah. Get your take profit for this. Right. Because works in both ways, long and short. The atr. Right. It's not an indication that markets are going just down slower. They also go up slower. I just want to emphasize this a little bit more because it works pretty well. I worked with this SL setup I think like 2 or 3 years in ES also NQ trading and of course it looks a little bit, yeah. Sinister. Put it like that in the NQ. If you have a stop of like 80 ticks that's $400 per contract already.

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Right. But if your trade is working out good and your entry is according to your rules or according to your setup, it usually works, right. Because this is just mathematical stuff. And yeah, of course monitoring the trade when it's online is mandatory as always. And you can also. Yeah then monitor or put a trailing SL on and I usually keep also this SL setup when the trade is like let's say 100 ticks in front. I also go break even with this trade. But I always, I want to have this SLATR ratio 1.5 to 2 times active in the trade when the trade is already in the green. That's a really simple approach, but for me worked out pretty well and maybe it's new to you and yeah, try it out. So trade less, always advance that. Tell the people in our community because as a retail trader you don't have to trade. Right. It's a little bit different from the institutional side where they pay so much fees and they have so much costs of running business that they have to make money. We can cherry pick our dates, right. And if you just look at ES chart from this week, I mean what was a great chance Monday from the open Tuesday, ugly, ugly range yesterday.

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These ranges with I don't know if the social media meltdown from Musk and Donald Trump put in some volatility. Pretty sure Tesla dragged us down a little bit. But nevertheless, let's get to the point. You don't have to trade every day, right. Don't fumble in the middle where yeah, market has too much noise which was the case basically the whole Tuesday mean reversion trading and also Thursday a little bit. We have NFP in six minutes. That's good. I think we have to discuss this also a little bit. But nevertheless what I'm always doing and that's the reason we have a ES chart here and a VIX chart over here. I basically watch this stuff in tandem all the time. Right. So that's the reason monitoring well is mentioned here. Of course these charts are showing mental Q levels because I'm part of a team and I'm using it actually. And yeah, what I always do, I always map out some important strikes in DX as well to set up a trade long or short in the indices. But that's obviously something you just can use when you are part of our community. But nevertheless this stuff works in tandem all the time or most of the time if the VIX is trading lower significantly levels.

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And yeah, that's not part of TA that's actually option positioning. It will always impact SPX and if it impacts SPX of course you will have the movement in the ES futures as well. Right. So the right upper text thingies says area of interest, MQ levels, open prices, closing prices and previous day levels. That's basically my approach for day trading. These four areas that I have over here is everything I use to set up a trade. I then work with a simple footprint chart. But as you can see it sounds a little bit comprehensive and maybe complicated but if you are working with it, it's pretty straightforward and easy. And this is basically just my process for four things. I'm watching a daily chart. Yeah, nothing really more. I do not care about patterns and yeah price action also it's just price and time on a chart, nothing else. Some big, big market participants out there, they even don't have charts. They work completely different. But as you can see with all the stuff that I'm showing you today, I basically have four points I'm using during the day. Right. This is stuff that we are offering.

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Right. External data. It's great actually the screenshot here is the dashboard from our website. You have different metrics, how to. Yeah. Use your approach for the day and how to define risk of course. And a few of them will show here. So the first thing is always in times of where options are dominating right. In the markets. You know it's with zero DTE and all this stuff which is already like 56% of the daily volume in SPX it's getting more and more important and all this stuff creates a lot of data. So cool thing on the left side here with the left red arrow wonder expected move. Right. Like here in the NQ contract that's actually running on the expected move 1.15%. Now you can think about it when you turn on your charts and yeah, the NESTEC is already up 1%. The one day expected move is 1.15%. Is my trade idea still available valid? Sorry? Is my trade idea still valid? If the NQ is already up 1% do I buy buy the breakout, let's say on a one hour time frame or do I wait for a lower price? Right, because the math behind it says this expected move is this big but we have already realized 1%.

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So maybe you wait for a lower price. Right. Of course markets can go higher as these expected moves but this is actually has to be backed by real buying, aggressive buying. Right. The best example because we have NFP today and with the SPX at 6000 this is such a big level out of options positioning. Price won't go through if we don't have really, really aggressive buying. And in like 30 seconds we will maybe know how this will play out today. So maybe let's talk about this also today a little bit because it's kind of interesting. ES is already up 0.4% today and yeah, with the data released today, if the data is good, we might bounce a little bit higher. Oh, it's out. Okay, well let's wait a minute. We have to check this. Of course. Now it's live and our topic is risk. But the market does not care. Let's give me two seconds. All right, the NFP print today, 139,000. This is not nearly 10% over the consensus and the forecast, but lower as the last month. Yeah, I say it's a nothing burger. And yeah, we will maybe not see the 6,000 today in SPX.

[00:30:41.03] - Speaker 1
I was. Yeah, okay. Right. Sorry guys. NFP just watching this quick here. What is volatility doing? So now your Vix already dropped below 18 pre market. You have to watch this today with Hawkeyes if we are going lower and vix. That's basically stuff I mentioned a little bit earlier. As for now this looks a little bit. Yeah, boring to be honest. All right, so let's step in here again. Yeah, implied volatilities for your favorite assets. This is basically the stuff of this slide and also the next slide we will come to it. The chart on the right side you can see it's called main chart for spx. Of course that's a chart above it. Below there's a little bit what's baked in the deltas and gamma from the option market. But what I want to highlight it out a little bit is, is the so called IV and hv. Right. So the implied volatility for the asset in red and the historical volatility in white, which is the realized volatility. Now two things can happen. You can have a pretty pretty high implied volatility. That means the option pricing is pretty pretty high for this market.

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But realized volatility is normal or a little bit lower. So that's kind of normal because implied means also options that are further out the term structure. They are usually a little bit more expensive. That's normal. But these two metrics are kind of worth to watch because you can easily say do we have a lower implied volatility than historical volatility? This was the fact this week in the Russell. I guess I wrote something about yesterday and if we Are boiling this down to a day traders business. That usually means you are not granted with that much opportunities to make money during a day. Right. Because if implied volatility is already lower than historical volatility, it also means the option pricing is lower than on a historical basis. And this directly transists into your chart. And as I said, you maybe have one or two opportunities during the day to make money. On the other hand, if implied volatility is pretty high and also historical volatility is pretty, pretty high. That happens basically in months like April and May. And yeah, to be honest the April was like the second or third. Yeah. Best month I've ever had in my day trading career.

[00:33:47.14] - Speaker 1
Tremendous opportunities during the day. You could also held like 13 hours for a trade to play out. Pretty, pretty good. Yeah. Implied volatility is pretty, pretty important for the day. So the next stuff that we are offering, I mentioned it earlier already, the left one is the so called term structure for the spx. You can see those different graphs and how they are moving right in terms of implied volatility. The bottom line shows the days to expiration. You can use these kind of charts to figure out if the market has already the higher implied volatility in like three, five or six days. We also have this stuff for stocks and usually if this is the case, if the implied volatility has some spike in it like we are seeing it today, there's usually an event happening like fomc, CPI and stuff like that in stocks. It's mostly important for an earnings report. So the option market is showing you over there that options are a little bit more pricey. That means on the other hand that the asset that you are trading, if you're watching this chart here for SPX and if you trade es and you have these spikes in the term structure, it means on this day there's a chance of more realized ticks or points in the index.

[00:35:36.15] - Speaker 1
But it also means maybe your standard setup is not that. Yeah. Tradable anymore. On the other hand, if you are having a good trade you can realize maybe more money. Right? What goes hand in hand with this is the so called volatility smile for the right side. But that's a little bit more of a broader view. It basically shows us how the IV is behaving when the price is dropping or the price is raising. Right. We had this thing in the VIX smile curve the last few days with the infamous spike of 20 and how you can work with this is yeah, pretty simple. Let's say today with The NFP release. The market is not really happy about this stuff and you see volatility rising. And I did a little bit of research and you're already knowing what this microf is telling you now to work with it and you see your Wix spiking above 20, then you know, okay, a lot of people are long D20 strike in Vix so that means they are making money when volatility is going higher. What usually happens when VIX is going higher? Right? Usually SPX and DES is going down on a daily basis.

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With this knowledge, you might have a little bit more cautious to buy a dip in es. Right? And you may think about it. Okay, let's short a rip because I know these 20 strike or showing from my volatility smile is so important. If we are breaking higher, I will not take long in es. Nq, Russell D Whatever, I will lean into shorts. Right. I notice that some people are saying a bias has nothing to do with day trading and it's basically just price on a screen. I work with buyers, to be honest. It's part of my preparation. The only thing that's important to mention here, if you are wrong with your bias 1, 2, 3 times during a day, that is maybe time to stop, right? Because if you are losing with your bias, it's part of the business you do. You did something wrong, just accept it and walk away. This usually means it's always good to have these data points. It's always good to analyze them and look over them. But in the end, remember our first slides with the risk reward and with the win ratios. This determines our success. So if you are wrong two or three times, stop it, walk away.

[00:38:40.21] - Speaker 1
Right. Your market is there the next weeks and the next days. So I think that's the last one. Yeah, we have some data models that are using different metrics. Usually this is stuff out of the option market. So it combines all the stuff that we have spoken today implies volatilities, positioning of course. So we have momentum scanner and also volatility scores. Those charts are here from hg, the gold etf. And this is SPX on the upper left hand side. Right. So what does this mean? You can even redefine the process of risk even more if you have like models that are further looking into data. Combine this stuff for you and yeah, giving it out a little bit more easy, a little bit more accessible. Because to be honest, to analyze a volatility smile you have to read at least a small booklet of it. Right? Or watching some videos on YouTube. How this stuff actually works okay. So these models can make it a little bit more easier, a little bit more accessible for you just to have a. Yeah, an overview how your market is trending, how your market is moving. Right. So it covers a little bit more data and give a little bit more user friendly output for you.

[00:40:17.08] - Speaker 1
Because the whole thing of trading and watching this stuff, it's of course it's a lot of technical stuff and a lot of data but I know it sounds a little bit weird. Gut feeling experience. Screen time also plays in this heavenly. And the more time you spend, the more ghetto, the more better you are getting with this stuff. And after the years I am already at the point where I say no today I don't want to step in. It looks awful, right? There is no big volatility, liquidity is good but the volumes are low. And yeah, you have to wait for your trade like two or three hours. I personally don't have a problem with this but what I'm doing then I set up my charts, set alerts and do something different. Right. Go a little bit away from watching tick over tick in your markets and candle over candle for like five or six hours. There's nothing wrong with it. If you are new into the whole business of trading then it's actually, actually be actually valuable to watch this stuff in the beginning just to get a feeling how stuff is actually moving.

[00:41:43.26] - Speaker 1
But from my experience there's so much noise and yeah, people like to watch this noise and make maybe bad decisions about it. That's the whole problem. And yeah, that's basically it I guess. Yeah. Look over some market reactions from the NFP because you are all here and looking bonds, a little bit of sell off. That's normal, right? NFP is still strong. We still have job creation. Why should you be? Long bonds. So the long end B20 year future and you low Wednesday low this week. Great. I still have a short over here but just two contracts short. Should, should be holding still. And yeah today if you're a day trader and want to step into the markets, SPX6000, that's the place to be. That's something we have to step over. Let's see. Vix 1732. All right, great. That's it. All right.

[00:43:08.05] - Speaker 2
Let's see if we have any questions. If not, Tim, thank you so much. And we'll be back next week guys. A lot of things going on next week as well, so stay tuned and thank you very much for watching. Have a great day Tim. Thank you guys.