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
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