A few weeks back, I kicked off the Intelligent Investor Series as part of my weekly commentaries. Th...
Successful or Unsuccessful? What to Believe
07/24/2015 6:00 am EST
Frank Kollar, of Fibtimer.com, offers a list of beliefs that are generally shared by successful market timers as well as a list of beliefs that unsuccessful market timers often subscribe to. It is a good idea for traders to know which beliefs to follow and which ones to disregard.
Successful market timers—meaning profitable market timers—have several common beliefs that help them achieve consistent profits.
On the flip side of this, those who are unsuccessful also have a set of common beliefs.
It is a good idea to know which beliefs will help you to succeed as well as which ones you may have that need to be changed.
Beliefs of Successful Market Timers
- I will not jump into a trade before or after a signal just so that I can be participating.
- I recognize that discipline is not a concept, it is an absolute necessity. The markets have a way of removing money from undisciplined market timers.
- I realize that what happens today, this week, or even this month, is not what is important. What is important is my success over time.
- I realize that losses are part of trading. No strategy is without losses.
- I accept that sometimes my investments will underperform the market, knowing that over time, they will outperform the market.
- I know that following a timing strategy through good times and bad are what will make me successful.
- I can follow a strategy for the long haul and stick with it, even when, at times, it is discouraging.
- I accept that following a timing strategy will require me to make frequent trades that may seem like mistakes. A string of small losses will not make me quit.
- I can ignore the mass media, which raise emotions and thus increase the risk of not executing a trade. It is often the trade that is hardest to take, that winds up being the most profitable.
- The markets provide a constant stream of opportunities. If I miss an opportunity, another one will follow.
- Keeping losses small and letting profits ride is not just a Wall Street saying.
NEXT PAGE: What Do the Unsuccessful Market Timers Believe?|pagebreak|
Beliefs of Unsuccessful Market Timers
- I must be trading all the time to be successful. I am uncomfortable when in cash.
- If my strategy is not doing what I think it should, I will make a change immediately.
- If I lose on this trade, I feel like a loser.
- If the market is rallying, I must get in even though my strategy gave no signal for it.
- I am unlucky.
- I get very upset when I miss a rally or if I am in a bullish position when the market is declining.
- I dread adverse news events and constantly worry that something will happen to make the markets go against me.
- I can't afford to lose anything on this buy or sell signal.
- I can't go broke taking small quick profits.
- When this losing trade gets back to even, I'll dump it.
Final Notes on Unsuccessful Timers
Unsuccessful market timers tend to see the stock market as a place that will give them future riches and solve all their problems.
Unsuccessful market timers have difficulty coping with the reality of being wrong. When events don't live up to their hopes, they seek to ignore them.
"As a successful market timer, you have to move from a fearful mindset to a psychological state of confidence. "
If their timing strategy gives a sell signal and they have losses in that position, they have a difficult time executing the sell signal and they will hold the position so that they can exit when it gets back to break even.
When things go bad, they often exit with huge losses and blame the strategy, the timing service, the markets. Everyone but themselves.
Many market timers give up because they are usually too quick in judging small loses as a system that is not working.
Giving up is the most common way a market timer can lose. You will win only if you execute the timing strategy. Every trade.
Paper trading cannot simulate the psychological aspects of trading with real dollars. Once a market timer has experienced what it is like to keep trading through a draw down and how good it feels to follow the strategy through the good, the bad, and the ugly days, he or she will not be as easily swayed again by adverse markets.
Final Notes on Successful Timers
Successful market timers know how to follow a strategy. They know the stock market is not a game and the only way to succeed is with a plan.
As a successful market timer, you have to move from a fearful mindset to a psychological state of confidence.
You must use a strategy that builds confidence by keeping losses small and letting profits ride when the markets trend.
Do not focus too much on each individual buy and sell signal. It is where the strategy takes you over years of trading that is important.
By Frank Kollar, Editor, Fibtimer.com
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