Starting from the complacency in the beginning of the year taking our market to all time highs right to the African Bank rights issue debacle which ultimately ended up in the share being suspended until further notice, one things for certain, volatility is the oxygen which ignites the combustible process and aids explosive action when used in excessive quantities.
However in saying this nothing smacks more of volatility than the chaos which erupted in parliament last week Thursday as a disagreement between opposition parties and the Speaker of Parliament turned what was thought to be a normal day in parliament into a circus act.
This spectacle of amusement not only liberated once disinterested viewers of parliament into a mob of reality television worshippers but showcased the true nature of these "Honourable Members" of society.
I'm sure you're scratching your head wondering how this forms any parallels with trading markets. My answer is nothing can come quite close than this textbook example of how complacent volatility set itselfs in and how the opposing side finds the strength to create an uptick and degenerates the situation into pure chaos.
Ever had the feeling when trading a stock it suddenly stops moving your way and just starts to oscillate between 2 points. Quite a frustrating experience, something we've seen happening this week on our markets. We term this kind of movement as "falling asleep". This has also been a frequently occurring theme in parliament over the last 5 years as seen in the picture below.
These kind of movements have be seen on stocks such as AVI or Mondi. They've reached a plateau after a massive run and the ruling trend setters start to lack the substance needed to take the value to greater heights. The opposing side finds just enough excuse to keep the ruling side at bay for a while, stalling prices when necessary.
A really great example which I wanted to share with you is Bidvest which has been "sleeping" for the past 7 months. Let's have a look at the chart
If you had only been watching this stock over the last 7 months chances are you would have got bored and probably thrown it aside waiting for the break out to the upside. If you the type of trader who trades ranges you had a few chances to make some decent money, but if you thought that this condition was going to hang around and continue to go to and fro you'd have been mistaken and got bumped around like an attack from a 3rd force.
These kind of movements have be seen on stocks such as AVI or Mondi. They've reached a plateau after a massive run and the ruling trend setters start to lack the substance needed to take the value to greater heights. The opposing side finds just enough excuse to keep the ruling side at bay for a while, stalling prices when necessary.
A really great example which I wanted to share with you is Bidvest which has been "sleeping" for the past 7 months. Let's have a look at the chart
If you had only been watching this stock over the last 7 months chances are you would have got bored and probably thrown it aside waiting for the break out to the upside. If you the type of trader who trades ranges you had a few chances to make some decent money, but if you thought that this condition was going to hang around and continue to go to and fro you'd have been mistaken and got bumped around like an attack from a 3rd force.
When volatility finally rears it's ugly head and begins messing around with all rationality the outcomes look disastrous. There is no distinct direction at which the price moves. Buyers and sellers started tussling amongst one another with violent swings from one extreme to the other leaving behind a destructive path of chaos. The uncertainty let loose causes many on the sidelines to watch idly by and seemingly chuckle at the poor souls going through this abrupt disorder.
Take note that the above description was how traders would react. The chart show clearly that any trading signal generated would immediately be declared null and void and create mass confusion. There is a few times where the sellers threaten to disrupt the long standing uptrend and bring this share to its knees but the buyers eventually grab a hold of the situation and maintain order and if you've noticed, the last candle on the chart exhibits what will be the breakout everyone was looking for. Bidvest has traded much higher and has resulted in a lot more happy shareholders.
However a striking resemblance to the chart above, watch the video below to see exactly how politicians react to a similar situation in parliament. The similarities are quite remarkable.
However a striking resemblance to the chart above, watch the video below to see exactly how politicians react to a similar situation in parliament. The similarities are quite remarkable.
So folks whats the moral of the story. Quite simply when a market is running nowhere and tempers are running high, sometimes a little commotion can definitely get the ball rolling and keep those buyers or sellers on their feet and besides who doesn't enjoy the fun it brings with it.
No comments :
Post a Comment