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Profit Targets... Important?
Or A
Really Bad Idea.
Predictable vs. Unpredictable?
Many traders and investors set goals. Typically, a goal might be to achieve a 15% gain every year.
Although it is pretty obvious that the markets cannot be depended upon for a "steady" rate of return, the question is, is it even a good idea to set such goals?
Would you rather have a steady return of +15%, +15%, +15% over the next three years? Or an unpredictable rate of return with potential drawdowns, say, -5%, +50%, +20%.
Assuming the goal of 15% is set for the next three years and you have an investment of $1000 to start, +15%, +15%, +15% means in three years your investment would be worth $1520.
But what about the unpredictable returns? -5%, +50%, +20% over three years will increase your original investment to $1710, even though you spent the entire first year losing money.
Catch A Trend, Let It Ride!
Market timers using trend following strategies such as those at FibTimer.com have no desire to try and reach, or to force results to meet, a preconceived profit target.
If, for example, we set a profit target of 15% and exited one of the incredibly profitable short trades in the 2000-2002 bear market, we would have greatly reduced our realized gains. Why exit a trend at 15%, and then sit on the sidelines watch the market go up another 60% or 70%.
In fact, we have no profit targets. Our goal is to catch every tradable trend, and when we do, to let it run as far as we can before exiting that trade.
That means when there are no trends, we will have no gains or possibly small losses. But it also means that when the market does trend, and history shows that markets are in trends 80% of the time or better, that we will let our profits ride and take every bit of the gains.
Trading Every Trend
One issue faced here at FibTimer, and we expect faced at all timing services, is the pressure felt by nervous subscribers. Believe us when we say it is an issue. We read and reply to all emails.
But here is our answer to nervous subscribers. If we reduce risk as well as reduce volatility in our strategies, in order to minimize drawdowns (during those times when they occur), we also lower returns over time!
| "Our goal is to catch every tradable trend, and when we do, to let it run as far as we can before exiting that trade." |
There is no way to trade all trends without taking the risk that the current trend might be a false one. Risk management used at FibTimer limits losses and protects capital, but at times, losses are inevitable.
By trading every trend, we are guaranteed that we will be on board of every money making advance, and every money making decline (bearish trades), that the future brings us. But you must be around for the money making trend, and you must have taken the trade, to realize the profits when we get them.
Lessons Of History
Remember the crushing losses of 2000-2002. The Nasdaq dropped 80% and the S&P 500 lost 50%. It would take the Nasdaq 2.25 years of 100% yearly gains (from the lows) to again reach its old highs. Or to be more realistic, it would take over 6 years of 30% yearly gains to again reach its old highs. No losses allowed!
What do you think the chances are of this happening? It is now year 2006 and we are no where near achieving it. But our aggressive strategies tagged 100% gains during those years.
It is important that you approach timing with this in mind. If you give it a month and then quit because you have no gains, you are only fooling yourself. We will continue to make the profits over the years. Because we trade "all" trends we "know" future profits will be realized. Years of experience and hundreds of years of market history are behind us.
Stay patient, follow the buy and sell signals, and the profits from the next big trend are yours. We do not know when the next trend will start. We do not know if it will be to the upside or to the downside. Though we do try to look into the future in our weekly analysis sections, no matter what, we trade the trends. That is the key to success.
Recent articles from the FibTimer market timing services;
Aiming For The Moon !
The Search For Overnight Riches
Can You Predict The Future?
Following A Market Timing Strategy
Market Timer, Know Yourself
Market Timing vs. Conventional Wisdom
Ignorance, Greed, Fear and Hope, The Deadly Enemies Of Profitable Trading
Diversification - It's Not Just A Word
Maintaining Discipline, Key to Market Timing Success
Trading Trends For Profits
Market Moods And Market Timers
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All Rights Reserved.
FibTimer reports may not be redistributed without
permission.
Disclaimer: The financial markets are risky. Investing is
risky. Past performance does not guarantee future performance.
The foregoing has been prepared solely for informational
purposes and is not a solicitation, or an offer to buy or
sell any security. Opinions are based on historical research
and data believed reliable, but there is no guarantee that
future results will be profitable. |
