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Simon Brown: I'm speaking with Fred Razak, Chief Trading Strategist at CMTrading. Fred, thank you very much for today. There is an election in South Africa in just over three months. I'd like to talk about that and the reaction of traders and long-term investors.
But as quickly as you recoil, I think, in a global perspective, the rest of the world will probably look at South Africa and say, “Well, you know what? [something like that report card we got as a kid]: “Maybe I can try harder.” “Maybe I can do better.”
Fred Razak: absolutely. I think governments determine policy, policy determines mood, mood determines expectations, and expectations determine sentiment. It is all-encompassing. And two of the most important factors are South Africa's infrastructure and unemployment. South Africa has vast resources, so foreign investors are watching very closely what the future holds.
Simon Brown: yes. In every sense of the word, we absolutely do it. Turning to the election, as I said earlier, the election is three months away. You can expect politicians to do what they do best: do a lot of outlandish and crazy things. And of course there are consequences, which may or may not result in a coalition government. I don't know. We are not political experts here.
But I think what we can expect is market volatility.
Fred Razak: Oh, absolutely. Investors are cautious at times like this. Looking across the Atlantic, this could reflect the strong market reaction immediately following the 2016 US election between Hillary Clinton and former President Donald Trump. I've never seen anything like it.
When things get to higher intervals, and we see ourselves at much higher intervals, the 3,000 point percentage isn't that big of a deal. So there is much more volatility on the JSE compared to 10 years ago, or even 15 years ago.
Simon Brown: I remember. And in 2016, of course, there was the Brexit vote. I remember that too. insane volatility. Intuition says that I'm a trader and I like volatility, but are there cases where some traders say, “Actually, I'd rather keep this quiet”? Shut down your computer for a few days and let it calm down. Because if you look at the Brexit vote, if you look at Trump's victory over Clinton, it was decided pretty quickly. ”
Fred Razak: There are different trading strategies depending on different market conditions. yes. There are situations where you only need a very flat line and very little volatility to take advantage of such financial conditions.
But clearly there are other, more favorable situations where markets exhibit extreme volatility, overreact and emotional trading without rhyme or reason.
And until there is truly a different species in the market that is not complacent, that is not greedy, that is not fearful, the market will trade differently. But until that happens, even the AI being built is programmed by humans. Therefore, we cannot expect the market to react in an inhuman way, which makes perfect sense.
Simon Brown: To do. And that volatility – if someone is going to trade through that volatility, my sense is, first of all, don't bring your own kind of biases and beliefs into it. Follow price movements. If you make a mistake, take a stop loss immediately. Don't try to fight technology. That will never work.
Fred Razak: Oh, definitely not. You can't fight technology in these situations. Please leave as soon as possible. I have seen many times people blow up their account numbers over and over without setting a pre-planned stop loss before entering the market. Especially in a market with such crazy volatility.that's the first thing I say [someone]. In these situations, the best offense is the better defense.
Simon Brown: And I said, like I said earlier, I might actually leave it alone, maybe I might trade it, but maybe the size of the position is part of how you manage that risk. I think it is.
Fred Razak: yes. I also hedge the position size myself. It does not mean buying or selling the same underlying asset. This means he has two separate assets that function in separate ways. In other words, if you buy gold, you sell the Dow. Understood? These are relatively correlated stocks. One goes up and the other goes down. That's the strategy.
as you said, [it’s] Just keep yourself to a minimum size to feel like you are part of the play. But again, you weren't exposing yourself too much.no one cries [about] Bringing money home. It's nothing to be ashamed of. But being careless in the market is shameful.
Simon Brown: That's a great point. That's carelessness. And what you alluded to there is planning for it, thinking it through. There are only 3 months left. It's about sitting down and saying, “I'm going to trade, but as you say, I'm going to look at uncorrelated assets and I'm going to reduce the size of my position.'' In other words, come prepared. Maybe it won't be unstable at the end of the day. If so, you're ready for next time. But be prepared and have a plan of action.
Fred Razak: absolutely. And you also have to consider the X factor. That means we are not prophets and we don't know what will happen. Is there a possibility of an upset? Is there anything else? Is it possible that change will happen and people will oppose it? Is it possible that the same thing will happen and people will oppose it?
The scenario is that we never know how the streets will actually respond to these types of stimuli. Therefore, it is very important to play defensively in such situations.
Simon Brown: I understand your opinion. We assume that if X happens then Y will also happen, which may or may not be the case. If you're a long-term investor listening to this, your palms are probably starting to get a little sweaty.To be honest, as a long-term investor, short-term volatility is [is] It's not that worrying for you. You have a quality long-term portfolio. What I'm trying to say is that you can pretty much ignore this.
Fred Razak: I'm not saying you should ignore it. But even if you have some cash on hand and are looking to invest for the long term, it can be a great buying opportunity, and if the market sells just fictitiously or erratically Double. I like to call it that because the trend is upward.
If you look at most indexes around the world, people are not interested in losing money. They make money for a living, and it is in their best interest to make a profit. Otherwise, the entire system would not exist. A basic assumption when trading in financial markets is that financial markets have an upward bias.
Are there any situations where there is a sell-off in the market or a so-called blood clot or large tank condition? Yes. But generally speaking, if you look at the indices around the world, [is] There is no upward momentum. Just yesterday, Japan's Nikkei Stock Average hit an all-time high.
Simon Brown: I was thinking of telling you that. I don't know if you were trading in 1989 when it hit its previous high.I was know Although I was a market expert, I was writing higher education exams. The recovery of the Nikkei Stock Average has been a long road.
Fred Razak: There it is. And it's actually powered by cutting-edge robotics technology called AI that will help Japan. Japan is facing an extremely difficult situation in its economic expansion due to stagnant population growth due to an increase in the elderly population and a significant decrease in the young population. They experience a lot of very interesting scenarios that have never been seen before in history.
Simon Brown: yes. And I'd like to say that his 30-year gap between the all-time highs of the index is unprecedented, but he's probably in the 1700s or something, and there's a record like that somewhere. Probably.
We would like to thank Fred Razak, Chief Trading Strategist at CMTrading, for his insights.
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