Combining Macro and Technical Analysis

What you will learn

• How macro context and technical analysis do different jobs.
• How to turn a macro view into a direction bias, not a trade.
• How to plan entry, stop, target and position size from the chart.
• When to stand aside because macro and chart disagree.

Explanation

Technical analysis studies price charts: trends, support and resistance, and patterns. Macro analysis studies the forces behind prices: rates, inflation, growth, the dollar and sentiment. They answer different questions:

• Macro answers "why" and "which side". It gives a bias, a preferred direction, for example "conditions currently favour a stronger euro".
• The chart answers "when" and "where". It shows where to enter, where your idea is wrong (stop) and where to take profit (target).

A simple process:

1. Macro context: what is driving the market (rates, data surprises, risk mood)? Write a bias: bullish, bearish or neutral.
2. Chart check: does the trend agree? If macro is bullish but the chart is in a clear downtrend, stand aside or wait.
3. Setup: find a specific entry at a level, with a logical stop beyond it.
4. Calendar check: is a high-impact event due before the trade can work? Reduce size, wait, or skip.
5. Size from risk: position size = planned risk ÷ (stop distance × pip value).

The risk-reward ratio compares the possible gain to the target with the planned loss to the stop. A 2:1 ratio means the target is twice as far as the stop. It does not tell you the probability of success.

Worked example

Hypothetical example: a German trader with a €5,000 account trades EUR/USD and risks 1% per trade. All prices are invented. Excluded: spreads, commissions, overnight financing, slippage and taxes.

Macro context (hypothetical): euro-area inflation surprised higher, the ECB sounds hawkish, and recent US data was weaker than expected. Bias: bullish EUR/USD.

Chart: EUR/USD is in an uptrend and has pulled back to support at 1.1000. Entry: buy at 1.1000. Stop: below support at 1.0960. Target: the recent high at 1.1080. No high-impact event in the next two days.

1. Planned risk: €5,000 × 1% = €50.
2. Convert to dollars (pip value is in USD): €50 × 1.10 = $55.
3. Stop distance: 1.1000 − 1.0960 = 40 pips. Target distance: 1.1080 − 1.1000 = 80 pips. Risk-reward = 80 ÷ 40 = 2:1.
4. Pip value: $1 per pip per mini lot. Size = $55 ÷ (40 × $1) = 1.375 mini lots; round down to 1.3 mini lots (13,000 units).
5. Actual planned risk: 40 × 1.3 × $1 = $52, and $52 ÷ 1.10 ≈ €47.27.
6. Possible gain at target: 80 × 1.3 × $1 = $104, and $104 ÷ 1.10 ≈ €94.55 (at 1.10; the real value depends on the rate when converted).

If the trade hits the stop, the planned loss is about €47, but slippage or a gap can make it larger. If US data surprises strongly before the target, the macro bias may change; the trader reviews the plan, not the hope.

Common mistake

Practice activity

On paper: hypothetical €4,000 account, 1% risk, EUR/USD at 1.0800, so €1 = $1.08. Macro bias: bearish EUR/USD. Chart: downtrend, price at resistance 1.0850. Plan a short: entry 1.0850, stop 1.0880, target 1.0790. Calculate the risk in dollars, stop and target distance in pips, risk-reward, and position size in mini lots (rounded down to one decimal).

Key takeaways

• Macro gives the bias ("why" and "which side"); the chart gives timing ("when" and "where").
• When macro and chart disagree, waiting is a valid decision.
• Size every trade from planned risk and stop distance, and round down.
• Planned risk is not the maximum possible loss; gaps and slippage can exceed a stop.

Next step

Congratulations on completing this course; to put this into practice, continue with the "Trading Foundations" course and revisit the trading plan lesson to add your macro routine to your written plan.