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Critical Issues For Market Timers
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. Four
critical issues; strategy, discipline, money management and diversification are
discussed below.
When the market has a prolonged down trend, such as the
2008-2009 bear market, a more aggressive strategy, using
bear funds, will achieve huge gains. But when the bear
is not growling, a less aggressive approach usually works
much better. And of course, no one knows ahead of time
when that bear market will occur.
Our very Conservative
S&P Timer, which only averages about one trade
per year, has a superb long term track record and was
in money market funds for both the 2001-2003 and 2008-2009
bear markets.
So, much depends on a market timer's expectations. Are
you looking for gains over a long time frame, during which
bear markets are sure to occur, or must you see immediate
or constant gains in order to stay with a timing strategy?
Market Timers Must Have An Edge
At FibTimer, our "edge" is trading trends. We know that the
financial markets are usually in a trend, either up or down.
In fact, history shows us that they are in trends about 80%
of the time.
This "knowledge" is our "edge." We know that 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.
| "Limit your
losses and the profits will take care of themselves" |
By limiting losses, and allowing profits to ride, we use our "edge" to time the
markets with great success. There is an old saying that applies here; "Limit
your losses and the profits will take care of themselves."
Disciplined Execution
Once you have an edge, you have to be able to execute. The common trading errors
of 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.
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.
A second reason for following a non-discretionary timing strategy is that is
gets you "out" of losing buy and sell signals fast while limiting drawdowns.
You are not subject to the psychology of trading. To holding onto a trade in
hopes it will come back to profitability. Then exiting, finally, in a panic after
huge losses.
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.
Effective Money Management
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 market, 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 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!
Diversification
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 bear strategies.
The rest is diversified (see the Diversified
Portfolio).
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 superb gains. 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;
From Euphoria To Despair, How Market Moods Affect Your Trading
The Grass Is Not Greener On The Other Side
Sector Timing for Conservative Market Timers
Following an Unemotional Trading Plan Equals Profits
Beliefs of Successful Market Timers
Aiming For The Moon!
The Compulsive Impulsive Trader
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© Copyright 1996-2011, Market Timing Strategies, Inc.,
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. |
