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Instincts vs. Market Timing Strategy
Humans are born with basic instincts for survival. They
need to protect themselves at all costs.
Certain critical instincts are inborn, such as hunger, self-survival, etc. But
humans are complex creatures. We also have learned instincts, habitual ways of
behaving that are so automatic and unconscious that they seem as if they are
part of our very fabric.
Acting Without Thinking Logically
For example, as you drive in traffic, you "instinctively" slow down or change
lanes when the car in front of you seems to be driving erratically.
You may have noticed that many drivers will make the lane change to avoid slowing
down, and will even speed up to pass to take advantage of everyone else slowing
down.
People react instinctively. Some act without thinking logically about their options,
without taking steps to avoid possible danger. They often tend to make poor decisions.
Behavioral economists have demonstrated that people also make automatic, unconscious
decisions when trading the markets.
| "Only over
time are substantial profits realized, and only
by those market timers who stay the course." |
Most people are extremely risk averse. They enjoy the pleasure of a sure win,
even a small one, but try to avoid the pain of losses at all costs. Yet there
is no logical reason to show such an asymmetry regarding their decision making.
Investors also sell their winning trades prematurely so they can lock in their
profits.
These unconscious and automatic decisions reflect a strong and universal human
desire to avoid risk.
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At FibTimer, all of our strategies are non-discretionary.
Emotions do not play a part in our buy or sell
decisions. 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.
Playing It Safe
As humans socially evolved, they learned to protect their survival by playing
it safe.
Playing it safe may be prudent for very long-term investors, but for shorter-term
investors... those who are unhappy with the losses incurred during numerous
inevitable downtrends and who wish to avoid those losses or to capitalize on
the downtrends, fear of risk and uncertainty is an impediment to success.
It is necessary to identify this need for safety and security and "reprogram" yourself
to work around it.
Following The Masses
A common illustration of risk aversion happens when market participants follow
the masses, as if they are wild animals banding together as a herd for protection.
They look toward others for direction, regardless of the consequences.
During a typical market correction, investors increase their selling the lower
the market goes, with huge numbers of them selling near the bottom. The same
thing happens in every decline.
As more and more people see prices drop, more and more participants sell. It
is scary to see your investment values plummet.
| "You
must "reprogram" yourself to think outside
the box." |
Is the news going to get worse? Will the prices reach
even lower lows?
Most people are afraid of pain. They are afraid that the price may go even lower,
and they sell because they don't want to lose even more money.
Of course not all investors will sell. Some will become so panicked that they
will be afraid to acknowledge their losses and want to leave them on paper, hoping
that the prices will return to previous levels in the coming weeks. During a
bear market this can be an even worse decision.
The masses try to avoid risk and pain, and by doing so, they tend to behave automatically.
Repeating the same actions time after time.
Devoid Of Emotions
Experienced market timers, in contrast, react more decisively.
They carefully follow a trading strategy that is completely devoid of emotions.
They follow through on buy and sell signals with absolute precision.
They know that any one or more buy or sell signals may be wrong, but they realize
that to trade profitably they must learn to trust their timing strategy and act
on it. Only over time are substantial profits realized, and only by those market
timers who stay the course.
Think Outside The Box
If you want to be a winning market timer, you must learn to identify your need
to follow the masses, and teach yourself to avoid doing what your need for security
compels you to do.
You must reprogram yourself to think outside the box. Rather than follow the
masses, you must follow your timing strategy, which may be contrary to what most
people would do.
Over time, and with extensive experience, you will develop the skills that will
allow you to trade decisively.
Once you have reprogrammed your behaviors, you will not be tempted to follow
the masses, but will instead recognize these feelings for what they are. Instincts
for survival, which may work in the physical world, are likely to cause poor
decisions and loss of capital in the financial world.
Rather than following the masses, you must learn to follow a timing plan, which
is not affected by the emotions of the masses.
The more decisively you can follow the timing strategy, the more profits you'll
realize.
Recent articles from the Fibtimer market timing services;
© Copyright 1996-2015, 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. |
