Effective market timers have a proven edge over time, writes Frank Kollar of FibTimer.com, and those who stick with their strategy while minimizing short-term losses are most likely to be profitable in the long term.
As a market timer, the one thing we must always remember is that the markets can, and most definitely will, throw every possible hardball, curveball, fastball, knuckleball, etc., at us.
The reason we invest in the stock market is because we recognize the huge potential for profits. But we are timing in a freely traded market that is subject to the emotional whims of traders. And when money is involved, those emotions can, at times, be extreme.
We became market timers because we have realized that not only is there no easy money, but also that the stock market will do all it can to relieve us of our money.
We are more than uncomfortable with the buy-and-hold approach to investing, and realize that although buy-and-hold may be fine if you are willing to wait 20-30 years, it can lead to huge losses over shorter time frames. The most current example was seen in 2008 when the S&P 500 and the Nasdaq Composite gave up 50%, resulting in huge losses.
The stock market is the ultimate big league, and there are traders who understand the psychological warfare you are facing and know how to use it to take your money.
Understanding those big league rules will put the winning odds back on your side. The timing strategies at FibTimer are designed to identify and follow trends. They allow profits to ride and cut losses short. This is what the professionals do, but most individuals have great difficulty doing.
See also: Why Selling Is Just So Darn Hard
Market Timing Is Unique
Market timers face psychological battles that very few people ever face in their entire lives. There are so many differences between the emotions experienced in trading the financial markets and what we experience in our lives that it can easily interfere with our ability to trade.
If we can identify those emotions, we can take steps to protect ourselves from them, stop them from influencing us, and become winning (profitable) market timers and traders.
See also: Don't Let Emotions Get the Best of You
For example, in the workplace, working hard and expecting to be justly rewarded for it are part of the American dream. Who would argue with the logic?
But in the stock market, work as hard as you can and the markets will still reverse on you and give you losses. Make the perfect trade and it can still go bad.
This is because timing the markets is not about our work ethic. It is not about genius or luck. It is about numbers and probability.
Numbers and Probability
Toss a coin 50 times and you can expect 25 times it will land heads up and 25 times it will land tails up. But there is no rule that says the first seven tosses will not all come up tails.
Once we realize that over time the numbers "always" add up in our favor, we can more easily endure the short-term swings. The market "hardballs," and being prepared for all that the market can throw at us helps us to stick with our trading strategy.
Once you face the fact that market timing isn't easy money, or that you won't become rich overnight, you will be able to prepare yourselves mentally for the long haul.
If you expect that at times there will be losing trades, you won't be disappointed when they happen. You will have your eyes set on the big picture, which puts the odds in your favor over time.