subject: Market Timing Facts Vs. Market Timing Fiction [print this page] The phrase "market timing" has been very misused, and misunderstood, by market commentators, analysts, traders and investors.
A stock, mutual fund, commodity, is purchased with the expectation it will be price additional over "time." It is sold when the expectation is that its value will decrease over "time." Any analysis supposed to form a profitable come on investing, could be a kind of market timing.
The very fact is, nobody buys a stock expecting it will be price less over time. They opt for a "time" to buy it, based on elementary or technical analysis, and expect that over "time" it can be worth more.
Market timers typically use index mutual funds covering one or more of many doable markets. They can time the S&P 500, the Nasdaq a hundred, Gold, tiny caps, bonds, U.S. greenback, etc.
Timers purchase the index fund with the expectation that it can increase in value. They sell the index fund after they expect it will decrease in value.
Simply concerning everyone trading the financial markets is, in one means or another, a market timer.
At FibTimer, we specialise in trading index funds, along with sector funds, exchange traded funds, and even selected stocks that tend to trend well and work profitably with our timing strategies.
Tell Us Another Story
At FibTimer, we have a tendency to believe that some of the worst advice, that is given to the vast majority of investors, is to pick out an index fund, founded an automatic deposit program to create monthly deposits into it, and then do nothing until you retire. At that time, therefore the logic goes, you'll be wealthy from the large profits derived from your investments.
Purchase-and-hold say the experts. Purchase-and-hold say the advisors who take advantage of your investment purchases though commissions. Obtain-and-hold say most mutual fund companies who exploit load fees thus various in variety it'd take an excessive amount of space to list all here. Purchase-and-hold say TV commentators and newsletter publishers who's purchasers already own the stock.
Imagine for an instant an investor, following such a obtain-and-hold strategy, who planned to retire in 2002.
Depending on the index fund, the value of their retirement funds would be worth 50% to 80% less after the 2000-2002 bear market. They're probably still working, suspending retirement and hoping the markets will revisit to their pre-bear market highs. For his or her sakes, we have a tendency to hope another bear market does not devastate them again.
Years once that bear market, most index funds are still far below where they were.
However those mutual fund traders who spent a little time watching the markets, who used even a simple two hundred day moving average to work out that their fund investments were no longer performing well and exited to money, avoided most of the losses and made money in money market funds.
Market timing does not work? Certain, tell us another story.
Amendment Is Inevitable
Market timing relies on the "fact" that 80% of stocks can follow the direction of the broad market. It is primarily based on the "fact" that the markets trend over time, have been doing so since the start of freely traded markets.
It is primarily based on the "reality" that change within the financial markets is the one thing we can count on to perpetually happen.
Merely said, the markets can forever go up and down, and the bulk of stocks in the market will follow this trend. Modification is inevitable!
And here is that the key.
While over the short term, financial markets will appear very chaotic. Intensifying at some point and down the next, seemingly with no rhyme or reason. Over time, they trend in huge up and down moves, easily seen on historical charts. And people long run moves "will" be traded profitably. Trend timers (trend traders) have been doing it for years. Quietly making huge sums of cash whereas most investors, following the emotional dictates of concern and greed, lose.
Either Take Action, Or Go Along For The Ride
The most effective tools for making entry and exit decisions, in order to profit throughout upward trends and safeguard capital throughout downward trends, are technical analysis tools. Fundamental analysis does not take under consideration whether or not a stock is in a very down trend or up trend. It's of very little use to promote timers. What counts is price. Is worth rising or falling? Is it trending? Technical analysis can give us the answer.
As mentioned on top of, a simple 200 day moving average would have kept mutual fund investors (and most individual stock investors) from losing their shirts within the 2000-2002 bear market. It also would have moved them back and had them totally invested in the following advancing markets. Moving averages are very easy technical analysis tools.
Obviously there are higher tools than the 200 day moving average. Not everybody wants to wait until a mutual fund has dropped below its two hundred day average and already taken a loss. A lot of depends on a traders time frame. Are they aggressive, conservative, or active? Their emotional ability to handle losses is also a factor.
Gains will conjointly be enhanced by aggressive traders who are willing to use bear funds during declines. In the case of the 2000-2002 bear market, bear index funds made over a hundred% with FibTimer strategies.
However regardless of a traders selection of funds, whether or not they're aggressive, conservative, or simply don't want to lose their shirts when the markets tank, market timing is the sole answer. You either use a strategy that takes you out of declining markets, or you tank right along with the declining markets (together with all the opposite get-and-hold investors).
There is little choice. Either take action or go along for the ride.
We tend to are market timers here at FibTimer and are for a very long time. We tend to have realized the profits, and have conjointly been through the ups and downs of the many market cycles; bull, bear and sideways.
Exceptional results are created by following solid, tested, non-discretionary timing methods for long periods of time. Poor results are the consolidation prize for those who follow typical wisdom, park their brains on hold for many years, and let the markets decide whether they retire wealthy, or unfortunately, poor.
