Real Estate Investor Magazine South Africa April 2015 | Page 57

insights Wave Ride the BY JAMES PAYNTER T he interesting thing about long term trends and tides of the ocean is that these have different moods and intensities. Sometimes you have strong market trends (like during spring tide), and at other times, lacklustre trends (like during neap tide). Knowing when each of these is in play and the characteristics of each is important to understanding and surviving the ocean – and the markets. Now, while knowing the Rand’s long term trend is essential, it is not sufficient in order to be successful in managing your forex exposure or trading. The fact is you can know the long term trend, and still lose money along the way! So, what else is needed? In any such market as the Rand, there is not only a primary trend (likened to the tide), but there is a secondary (or intermediary) trend, which can be likened to the waves of the ocean. Waves are affected by the tides, but also have their own moods, cycles and rhythm due to secondary natural forces. Depending on the prevailing sentiment at any time, the markets can be trending nicely, or be very choppy, or even flat. To succeed, you need to understand what mood the market is in, and what is most likely to happen next. Just like weather-based forecasting systems, having a system that uses past market patterns to forecast current trends can be extremely useful in giving you a heads up as to whether a market is likely to stay flat, get choppy or start trending strongly. Or a reverse trend. Understanding how this relates to the underlying trend is critical to how successful your ride is likely to be. As a trade (just like the surfer)r, your best ride will always be to catch strong trending waves in the same direction as the underlying trend, and ride them out until they have lost power. Then wait patiently for the next one. Chart of the Dollar/Rand since 2011, these secondary trends (shown in black) are superimposed on the primary trend of a market (shown in red). RESOURCES Dynamic Outcomes www.reimag.co.za April 2015 SA Real Estate Investor 55