Real Estate Investor Magazine South Africa February 2016 | Page 53

and further against you. Until, finally, you can take the
pain no longer, and you exchange before you suffer any
further losses.
...Only to watch the market immediate reverse in your
favour!
This is what happens when you are doing what everyone
else does, as part of the crowd, making emotionallybased decisions which drives the market from one
extreme of hope to the other extreme of fear. Resulting
in regretted decisions at almost at every turn. And
what we find at long term market tops and bottoms,
is an extreme of these sentiments. Which of course is
evidenced in the news.
This is like a feedback loop, as the news reinforces
your feelings. The more prevalent and intense the news
(positive or negative), the more this reinforces your
own emotions. And as a result, the more likely you will
make a decision just at the wrong time - when market
is about to reverse from this extreme of sentiment.

And, what’s more, the more you look
for consensus (try copy what the
crowd is doing), the more likely you
will get it wrong.
To get market timing right, you need to do exactly the
opposite of what the crowd is doing, and in most cases,
exactly the opposite of what your emotions are telling
you too. As Warren Buffet aptly advised, “Be fearful
when others are greedy, and greedy when others are
fearful.” So, what’s the answer?

Rational and Objective Decision Making

What is imperative, especially in times of extreme
sentiment, is to have a rational, objective perspective of
where the market is positioned and where it is likely to
head. I have found in my 20 years of forex experience
that the methodology that gives the greatest clarity in
terms of future market direction is the Elliott Wave
Principle.
The Elliott Wave Principle is a discovery made
by Ralph Nelson Elliott in the 1930s. Following indepth analysis of stock market price movements,
he came to the conclusions that all liquid financial
markets (of which the Rand is one) move in definable
www.reimag.co.za

patterns governed by the Laws of Nature, the result of
mass human emotion, which drives the market from
one extreme of hope and greed to another of fear
and despair, and back again. Given a set of data, the
majority of a crowd will react in the same inexplicable
but predictable way.
Applying these laws to any market gives us the
ability to map out a probable outcome for th ]X\