The Roman philosopher Seneca wasn’t talking about the stock market when he wrote that “T...
A Market Timer's Worst Enemy
10/19/2015 6:00 am EST
Since many new market timers unwittingly sabotage their own efforts to time the markets profitably, Frank Kollar, of Fibtimer.com, offers several suggestions and warns against the dangers of trading impulsively and not having a concrete plan for controlling risk.
If you're not careful, you could be your own worst enemy.
There are many different ways to sabotage your efforts as a market timer. Some of them are at the forefront of your mind, such as not trading the strategy, while others are deep seated; they lurk at the back of your mind and work behind the scenes.
Make sure that you are not unwittingly sabotaging your own efforts to time the markets profitably.
Trading by the Seat of Your Pants
Many market timers are conscious of how they ruin their own market timing efforts.
The common way is to make buy and sell decisions by the seat of one's pants. Rather than following a timing strategy, those new to market timing often make their timing decisions as they go along.
What usually happens, unfortunately, is that one doesn't have a clear idea of when to enter, exit, or what to do when market conditions don't meet their expectations. And market conditions usually do not meet anyone's expectations.
Without clear buy and sell signals, one is likely to panic at key moments in a market timing strategy and act impulsively.
It is common for new market timers to say, "I don't know what it is, but I can't stick with my timing strategy."
The usual explanation, however, is that the trader is not actually following a strategy at all. All successful market timers need a clearly specified strategy that can be easily followed. A clear roadmap is the best weapon against self-destruction.
Traders also sabotage themselves by failing to control risk adequately. Carelessly risking substantial amounts of capital on a single trade is one example. This is likely to produce a significant blow to one's account balance should the trade be a loser.
"A clear roadmap is the best weapon against self-destruction."
Whether the outcome is favorable is not the only relevant issue, however. Merely knowing that one is taking an enormous risk carries a toll psychologically.
The added stress usually takes the form of extreme impulsivity. The best antidote to this problem is to carefully manage risk and lessen the potential negative impact of a losing trade.
This can be accomplished only by following a well planned timing strategy and sticking to it absolutely.
Most of FibTimer's strategies have some diversification built into them. There is a reason for this. Diversification keeps losses from any one trade to a minimum.
Once you believe that you have little to lose on a single trade, you will feel more at ease and you'll be less likely to make impulsive trades or to skip a trade out of fear.
Once you know your long-term strategy is realistic, you will be able to follow buy and sell signals decisively, calmly, and with self-confidence. Look at the historical trades of the FibTimer strategies you plan to follow and get a feel for what to expect.
You will see that there are losses, but those losses are always very small. You will also see that the winning trades are often high profit wins and also last for longer periods of time, sometimes many months.
This is because trends are where the profits are and profitable trends often last a long time. The losing trades are usually of short duration.
Do not underestimate the many different ways it is possible to sabotage your efforts.
Consider the possibilities and make sure they aren't working behind the scenes to waylay your best-laid plans to profitably time the markets.
By Frank Kollar, Editor, Fibtimer.com
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