“Do you think price movements resemble waves of the sea?” on Toyo Keizai ONLINE column running
Good morning, this is Matsushita.
The trends that exist in the market can,
at times, be likened to the waves of the sea.
By imagining trends as waves,
trend-following trading becomes like surfing
(wave riding).
This is a very easy-to-understand example.
Waves appear and disappear,
and keep repeating appearing and disappearing,
so if you can step off near the peak of that wave,
you can secure profits greatly.
This is a clear example of trend-following trading.
As a simple image, please imagine wave riding.
This morning, while thinking about this,
I felt that adding one more concept
would allow us to capture market price movements even more accurately
than before.
That is, the existence of the "tide."
Not many people are conscious of the tide,
which refers to the ebb and flow of seawater.
I believe it is caused by the gravitational pull of the Moon.
When you go clam digging,
you can clearly see the difference between low tide and high tide.
Clam digging is done at low tide,
when the coastline retreats far,
and you dig for clams on the sandbank, right?
Actually, within this tide there are days when the ebb and flow are larger,
and days when the ebb and flow difference is smaller.
From upper elementary school to junior high, I was a fishing boy, so
I would research the tides of the sea and go fishing.
The state with large tides is called "spring tide,"
and the small state is called "neap tide."
There was also mid-tide.
For coast fishing, spring tides are more suitable, and I would aim for days with spring tides to go fishing.
As for this tide, it must always ebb and flow,
and ebb and flow again.
There is a cycle here, literally.
The Meriman cycle theory originally starts from celestial periods,
so the tide's ebb and flow cycle can be measured by the Meriman cycle. (laugh)
Tides that continuously cycle through ebb and flow move between the larger difference of spring tide and the smaller difference of neap tide.
They go back and forth between those extremes.
There is also a cycle here.
And finally, during spring tides, the waves we observe become even larger.
When you think in order like this,
the sea's waves become larger during the transition from low tide to high tide on the spring tide day.
They are larger in that time.
The bigger tide cycle and the smaller wave cycles
combine to amplify energy, causing the size of the waves to change.
This is very similar to market price movements.
Market movements have large trends like the 5–8 year cycle,
as explained above, akin to the tide.
And the waves we directly aim to ride have small waves of 1 year, half a year, a month and a half,
and various smaller waves.
If you think in terms of surfing,
rather than enjoying it domestically,
you would enjoy it more in Hawaii or Australia,
where you can ride even bigger waves,
which would be more enjoyable.
Choosing Hawaii or Australia is like recognizing the environment and selecting assets.
Market movements resemble the sea's movement closely.
And that movement cannot be changed by us investors,
no matter how hard we try.
Continue to ride uptrends with a straightforward approach,
and it is wise to exit quickly from downtrends.
While imagining the sea,
with a grand and relaxed mindset,
please enjoy investing.
