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Trading With Discipline
Key To Market Timing Success
It is not enough to have a successful market timing strategy if that strategy is not traded with discipline. It is also not enough to trade with discipline if you are overly aggressive with those funds allocated to market timing, and cannot handle the resulting volatility.
Many market timers think that the more they trade, the better they will do. But in reality, market timers do not need to trade aggressively to do well. There are four critical issues market timers must deal with; strategy, discipline, money management and diversification.
Market Timers Must Have An Edge
At FibTimer, our "edge" is trend trading. We know that the financial markets are usually in a trend, either up or down. In fact, our research, going back many years, tells us they are in trends over 80% of the time.
This knowledge is our edge. We know there are times that the markets are not trending, but that these times do not last long. We keep our losses small during non-trending markets using disciplined risk management. And, by trading every trend that occurs, we know absolutely that we will "never" miss a trend.
With the markets trending 80% of the time, we are profitable 80% of the time. This does not mean we are profitable on 80% of our trades. It means that because 80% of the time the markets are trending, and because we trade all trends, we will be making money in those trends.
By limiting losses, and allowing profits to ride, we use our edge to time the markets with great success.
Disciplined Execution
Once you have an edge, you have to be able to execute. Some common trading errors; not taking trades until you see if they are profitable, or jumping the gun and taking trades ahead of time because you "think" a signal will be issued soon, can be a disaster to your profitability.
| "If you are concerned that following a disciplined non-discretionary timing strategy can result in small losses at times, just try trading the markets using your instincts. The deadly results of emotional trading are usually evident quickly." |
By not sticking to a plan, you allow emotions to rule your finances, and that places you right in with the majority of investors. Those who are the cause of the market's volatility.
The "herd" followers.
At FibTimer, all of our strategies are non-discretionary. Emotions are not allowed. Our strategies offer disciplined execution of non-emotional buy and sell signals.
The reason for following any timing strategy is to remove yourself from making emotional trades. To remove yourself from the herd, which is often headed in the wrong direction. Towards the nearest cliff.
If you are concerned that following a disciplined non-discretionary timing strategy can result in small losses at times, just try trading the markets using your instincts. The deadly results of emotional trading are usually evident quickly.
A second reason for following a non-discretionary timing strategy is, it gets you out of losing buy and sell signals fast while limiting drawdowns. You are not subject to the emotional pitfalls of trading, such as holding onto a trade in hopes it will come back to profitability, then finally making a panic exit after taking a large loss.
The disciplined execution of a timing strategy avoids all of these pitfalls. You just follow the buy and sell signals with the absolute assurance that your losses will be limited and you will never miss a trend. Over any fair time frame, you will beat the markets.
Diversification... Not Just A Word
Many times impulses are difficult to control because of emotional states.
Overly aggressive investment allocations can ruin even a good timing strategy with excessive drawdowns, while overly conservative allocations of capital will not optimize your total returns.
If you are a conservative investor who wishes to use market timing to protect against losses in a bear markets, do NOT invest 100% of your funds in an aggressive bull and bear strategy that you are not prepared for. Yes, they make a great deal of money over time, but aggressive timing strategies do have more frequent buy and sell signals, and more frequent small losses.
| "Diversification is not just a word, it is a prerequisite to having a successful timing strategy." |
If, as a conservative investor you are unable to handle those losses, you are likely to exit the trade, thus locking the losses in at just the wrong time!
Stick to strategies that fit your emotions. Market timers should know themselves and use timing strategies that they will be able to stick with over long time frames. Patience is the market timing key to success!
Even aggressive market timers should not time 100% of their funds in a single aggressive strategy. Diversification is not just a word, it is a prerequisite to having a successful timing strategy.
At Fibtimer, we rarely invest more than 20-30% of our own funds in bull and bear strategies. The rest is diversified in sector funds (Sector Timer), a small percentage in the Gold Timer, Bond Timer and Smallcap Timer.
Using at least some diversification takes the stress out of investing, and makes it much easier to follow buy and sell signals with discipline.
Conclusion
At FibTimer, we never question buy and sell signals and follow them faithfully. Over the years, our disciplined approach has resulted in excellent gains, year after year. We hope that we can instill this disciplined trading into all of our subscribers.
It does not take blind faith. What it takes is a realization that our own emotions and instincts are usually wrong, and that a non-discretionary timing strategy that trades all trends and limits losses in non-trending periods, is the most successful approach to profiting in the stock market.
Once you realize this, you will relax and allow the strategies to successfully grow your investments as they are designed to do.
Recent articles from the FibTimer market timing services;
Buy-And-Hold? It Works... If You Have 40 Years Or So
From Euphoria To Despair, How Market Moods Effect Your Trading
Following The Crowd. To Conform Or Not To Conform?
When Your Money Is On The Line, Market Timing And Emotions
Hope May Spring Eternal, But It Won't Make You Money
Immediate Profits vs. Delayed Rewards
Discipline and Market Timing
Letting Your Profits Ride
Focus On The War, Not The Battle
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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. |
