Fear And Greed

Finding The Answers

Almost 27 years ago I had amassed my first nest egg that I was confident would eventually lead me to a rich and prosperous future.

After barely making it through the 70's, with interest rates in the teens, three jobs, and more bills than I had the money to pay for each month, I had finally "arrived."

The stock market was the obvious answer. Like Willie Sutton said when he was asked, "why do you rob banks?" His reply, "because that's where the money is."

But I faced two emotions that not only caused me anxiety, they literally froze my ability to make decisions. I wanted to "grow" my money, but I did not want to "lose" any of it.

Not a penny!

During this time I found my way into the world of market timing. Searching for a way to be fully invested during advancing markets, yet in cash during declining markets. Eventually I did find answers, but only after much research and plenty of costly mistakes.

However two emotions had to be overcome before any of my timing strategies could work.

What good is a plan, if you can not, or do not, execute it?

Fear and Trading

I admit to being greedy, wanting to make those profits that seemed right there for the taking, yet I was fearful of losing my hard earned nest egg.

How do you make decisions when those decisions affect something you hold dearly? Meaning, your money!

First, fear doesn't form in a vacuum. It is a learned response. In the case of market timing, when you have a buy or sell signal that goes bad, the regret and frustration can carry over into the NEXT buy or sell. Or worse, the fear is so consuming, that you don't even enter your next trade.

"Never mistake genius for profits derived from your trading strategy."

Of course, Murphy's Law dictates that the buy or sell signal you don't enter is the one you should have entered, which only compounds the fear and frustration.

This particular problem is made much worse if you enter every buy or sell with the "expectation" that it should be profitable.

If you believe that, then here is an important piece of information for you - "not every buy or sell will be profitable!"

Greed and Trading

Greed creates the opposite problem.

After several winning trades, the feeling of invincibility supersedes being logical. This will ultimately lead you ignore a successful timing strategy and into trades that you normally would not have entered.

Successful market timing is only accomplished by sticking to a proven timing strategy. But entering losing trades, and ignoring your trading plan, seems to get much easier after a couple of winning trades.

Never mistake genius for profits derived from your trading strategy. Genius loses money. Trading plans make money.

We All Want To Be Bullish

The difference between being "emotional" and being "blinded" by fear and greed is indeed critical to success.

Experienced market timers know this.

A strategy can go for years making profit after profit, and then the markets do what they do best. They frustrate us. We enter a volatile sideways market that is virtually un tradable.

It happens. But it "always" ends. And most importantly, if we don't take the trade that hits the jackpot, it will only re enforce our fears.

"It's important to recognize your emotions, and more importantly, how they affect your investing approach"

Every trade MUST be taken. If aggressive trading is taking it's toll on you emotionally, use a strategy that works in all markets, like our Conservative S&P Timer.

But keep trading. The only way to market timing success is to make the trades.

Fear blinds us to opportunity.

Greed blinds us to danger.

It's important to recognize your emotions, and more importantly, how they affect your investing approach. In general, we all want to be bullish, and are eager to see any upward market movement as a rally, even when it's not.

Conclusion

For over a year now, the stock market has been destroying savings, retirement plans and trading portfolios alike. But trend timers have been profiting through it all, or at least in money market accounts and not losing money.

What has been occurring is exactly why market timing is crucial. Buy and hold does NOT work unless you have very deep pockets or a very long time frame, like 30 years..

Are fear and greed driving your investment decisions right now? If you are trading the aggressive Bull & Bear Pro Timer strategy, but in reality you are just looking for a conservative timing strategy to keep you invested during advancing trends, and protected from declining trends, then you are in the wrong strategy!

Aggressive market timing is for "aggressive" timers. Those trying to wring as much profit out of the market as they can, and willing to accept short term losses as the price for achieving above average long term profits. Aggressive timers are unfazed by the ups and downs of an aggressive timing strategy.

If you're not sure, or you are concerned about frequent trading, I'd recommend either moving to a diversified trading strategy such as the Sector Timer, or even using the Conservative S&P Timer. Possibly our "Diversified Timing Strategy" is the answer for you.

Whatever you do, whichever strategy is right for you, stick to the plan!