subject: Identical Analysis, Different Market Timing - One Profits, One Loses [print this page] Identical Analysis, Different Market Timing - One Profits, One Loses
Do you know that two people could both have the same analysis and both be right, and only one ending up making a profit? That is market timing acting on their trades. The person that has lost money in this potential trade might have started his trade way too soon or maybe way too late. So, you see, even though he was right, his market timing was not.
In the world financial crisis that has happened during 2008, many people made a killing in the market even though most were losing huge amounts of money. But there were people that were betting on the right side, for example shorting the stock and real estate markets, and still lost money. One of the reasons for this is that they probably started the trade way too soon and thus, the market ripped them off before they could see their trade becoming a successful one.
The problem was, and it is as a matter of fact, RIGHT ALL THE TIME ALWAYS! It doesn't matter if you prove with huge amounts of data and facts how wrong the market SHOULD be. All that does not matter, the market is right, full stop. So, when many traders started their trade back in 2005 and 2006, already foreseeing a real etate debacle, the market, unfortunately, kept going up and up until they no longer could sustain their losses even though they knew it all along they were right.
I believe this is one of the worst case scenarios that can potentially happen to a trader and/or investor. This has happened to me many times although in some small trades. Maybe it has even happened to you. How many times have you bought a stock, the stock plummeted just enough to hit your stop and then right back up where you predicted it would. You would right in your analysis but wrong in the timing. And that makes a huge difference.
