DIARIES OF A FUND MANAGER

 

 

Market Tides and Market Waves

 

A lesson I always love to pass on to young traders is to deeply understand the concept of tides and waves.

 

Tides are the biggest waves and motions we see in ocean, caused by the celestial bodies.

Waves on the other hand can be caused by a simple gust of wind.

 

Markets work in a very similar way.

A tide would be a booming economy for example. Hence the famous aphorism “A rising tide lifts all boats.”

A wave on the other hand could be a news-piece, a long awaited product release, or a promising statement made by a company, causing a single boat to rise or fall out of sync from the other boats.

 

What must be observed, however, beyond anything, is the strength of the tide. For just as a rising tide can lift all boats, a sinking one can crush them all should the water be too shallow.

 

A strong tide can break any wave and force the wave to go the direction of the tide. Hence it is wise to ensure that you are never trading against the tide.

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