Rules for Market Timing Success
12/29/2015 6:00 am EST
For the benefit of all newbies interested in honing their market timing skills, Frank Kollar, of Fibtimer.com, points out that—in order to be successful—one must be able to see past the urges to buy and sell, while pitting his emotional skills against those of tens of thousands of other traders.
There are several critical factors needed to be a successful market timer.
Money does not accumulate in your account without some work on your part. In fact, market timing means pitting your emotional skills against those of the tens of thousands of other traders.
Most individuals who invest in the stock market lose money. Many are not aware of that. Most investors and traders follow the majority (the herd) which usually buys and sells at the wrong times. They buy at tops, sell at bottoms, make emotional trading decisions based on news events.
The herd does this for a reason. At the time they make their decisions, they think they are right. Emotions are powerful persuaders.
This means, for you to be successful, you must be able to see past those urges to buy and sell, which will happen to you just as they happen to everyone else. If you can do this, you can succeed at market timing.
But do not despair. Successful timing is not hard. You just need to follow certain rules of trading. Here are some important (critical) rules for market timing success.
You Must Have an Edge
We have discussed this in previous commentaries. You must have a proven trading edge that puts you into profitable positions.
FibTimer strategies identify trends and trade them—in both advancing and declining markets—with great success.
Research shows that the financial markets trend about 80% of the time. Our strategies exploit that knowledge. We care nothing about what newscasters say or what the latest economic indicator is.
This is our edge. The trend is where the profits are and that is where we are.
Having an edge is great, but if you cannot stick to the strategy that uses it, you will not be profitable. The urge to follow the crowd is enormously powerful.
For example, let's say the market is in the midst of a two-day super rally. You just know the current sentiment is correct. You can feel it.
But your timing strategy is not letting you follow the crowd, so you exit the strategy and go your own way.
You have just joined the herd.
All too common, and usually, it results in a loss.
NEXT PAGE: The Most Common Error Made by New Market Timers|pagebreak|
Effective Money Management
The most common error made by new market timers is to place too much money into a single aggressive strategy right away.
All timing strategies have losses. Good strategies keep those losses very small. But aggressive timing strategies are—as their name implies—more volatile than more conservative strategies.
A new market timer, faced with an immediate small loss in an aggressive strategy, is very likely to be an ex-market timer.
They could have beaten the market if they had stayed the course, but the aggressive nature of the strategy they chose caused them to panic and leave.
They could have followed a conservative strategy more in line with their emotional ability to trade. Fibtimer has them too. The number of trades does not indicate huge profits. You do not need to trade aggressively to win.
Good timing strategies, such as those followed by FibTimer subscribers, control losses and keep them small. They will also identify trends and keep you in those trends until they end, thus capitalizing on as much profit potential as can be realized.
There is an old saying, "keep your losses small and let your profits ride." If your timing strategy does this, you will be profitable.
You Must Have a Plan
This is where FibTimer enters the picture. We have battle-tested timing strategies which have gone through every kind of market condition imaginable, including the bear market of 2000-2002 which chopped 80% off the Nasdaq and 50% off the S&P 500, plus the 50% declines in the 2008-2009 bear market.
By using our edge (trading trends) we are able to effectively profit in both up and down markets, while controlling losses in volatile sideways markets.
You must have a determination not to quit when things are not going your way. Those who succeed in any endeavor have made a commitment to seeing it through both good times and bad.
We began timing the markets all the way back in the early 1980s. It was trial and error back then, but we had committed to profiting from the financial markets and that is exactly what we did.
The same commitment, and following time tested strategies such as those used at FibTimer, are the keys to success.
By Frank Kollar, Editor, Fibtimer.com