They Say - You Cannot Time The Stock Market - Part 2
They Say - You Cannot Time The Stock Market - Part 2
Few people are naturals at making money at investing in the stock market. Not many people have a stock market trading system built into their soul, but they are rare. However, most of us mortals, don't have this ability. Most of us struggle and make a little money here and there and then lose a massive amount of money on one or two trades. Investing is counter-intuitive. You cannot win at trading the stock market, based on your emotions. That is how most people trade. The skilled traders know that you are trading emotionally, and they take advantage of that fact. Believe me, they aren't trading emotionally. So what is the average guy, with retirement coming up soon, supposed to do?See previous article that discusses principles #1 & #2: Safety & Diversity, and,Ease of trading. We discuss Principles #3, #4 and #5 in this article. actually Principle #3: Time the Stock Market I know. You have read many articles that say that you cannot time the stock market. If you follow a stock market trading and timing system, you can time your purchases to your advantage. You need something clear-cut like: The market is bullish. Or, the market is bearish. Or, who knows? Sell your holdings and wait for a trend to develop.. You have to be on the right side of the market. Never short a bulish market. Never go long a market that is dropping. These principles appear to be so simple, who would ever contravene these rules? Many people do. I know I have.The technique is getting in on a trend. You don't care whether it is an up-trend or a down-trend You have to go with the trend. Will you get into the trend at the very beginning of the trend? Probably not. But you will get in early enough to get a good piece of it. Will you get out prior to the trend changing direction? Most likely not. But, you won't be holding, and hoping, as most or all of your gains disappear into some professional trader's billfold. When the market is not trending, you need to get out. Sell your positions and pause - this is very wearisome for some traders, by the way. Many people are so anxious to make money, that they think that they have to be in the market almost or all of the time. They over-trade, and get a little haircut here and a little buzz cut there, as the market goes up and down back and forth. Pretty soon, if they do this long enough, they end up bald.Can you depend on a good stock market timing system getting it right, almost all of the time? I have never seen one. But there are a few good stock market trading systems available that make more money than the average trader can make. If you are capable to get the timing services trade dates, you will examine at them and think, "Well, I could have done better than that." Indeed, you probably couldn't - or you wouldn't be reading this article. You might consider the trades and think, why didn't they get in there? The market was going up there. They would have made a great deal more money if they had gotten in earlier. If you think like that, you are afflicted by 20-20 disease. Or, perhaps, you should be renting out your time machine, or crystal ball instead of investing in the stock market. Principle #4: Many strategies are useless. Stock market timing services are not perfect. Let's admit that fact. In fact, pundits have stipulated that "buy and hold" is the way to invest. Well, let's look at the last ten years. You would have lost about 28% if you bought and held. If you had purchased almost any mutual fund, you probably would have lost almost as much. Check out several of our other articles that consider these facts.Perhaps you should simply "dollar-cost-average". That means you buy a fixed dollar amount of stock every month, or every year even if the market is going up or down. This method has been a failure over the last ten years, too. How about one way or another finding a stock that is going up and keep buying more shares of it as it goes in your direction. Trust me, that doesn't work either. Does Government Motors bring memories back? Does AT&T or Cisco do anything for you? Ok then. What about following the maket gurus? They are TV all day long. There are countless financial blogs. There are services, I won't mention any names, that disseminate crumby, thinkly traded, stocks to buy. If they have multitude of subscribers buying, the stock, that stock will go up. Then, of course, they sell before you do. You are left holding the bag.Here it is!. Buy a stock that is depressed and is at the bottom and buy it there. If you have been trading for a while, you will have learned this lesson, too The point at issue is this. Where's the bottom. Stocks routinely go down further than the charts would indicate. They can break support and go down in impressive, gut wrenching strides. Many times investors turn into "long-term investors" because they feel that they will make it back someday. You convince yourself that If you hold it long enough, the stock will have to come back up - sometimes it doesn't come back up.Principle #5: Money Management Isn't that what the old Merrill Lynch, publicized as their accounts - money management accounts. I think I had one of those accounts, many years ago. That's not what we're talking about now. If we are going to have a stock market timing & trading system, we need to exercise money management. We need to in some way know when to "take the money and run"! We cannot go into all the particulars in this essay, but to give you the simple principle, you have to take profits as the stock, or broad-based index is moving in your direction. When you have the precise amount of profits, which is defined by the money management system, then, you should pluck them. Sell your holdings and put the money into your account, before the market reverses its direction and takes your profits away. If you do follow a defined, tested, money management system, you will find that you don't have to suffer as much draw-down. Draw-down is defined as the amount you are willing to lose from where you bought, before the investment goes back into the positive direction - or, in many cases, you abandon the trade. However, if you take the winnings when the trend is very likely to end, you improve your account balance. In summary: You wish to gain security by diversification. You have to have an easy to follow stock market trading system that doesn't take much of your time. You have to have a way of discerning whether the market is bullish, bearish, or should you sell and be out of the market for a while. You need to know when and how to take profits as they present themselves. And, finally, you need to know doesn't work.
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