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.
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.
Fibtimer FREE
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Conservative
S&P Timer
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10
Year Results
Fibtimer Timing + 258.9 %
S&P 500 Index +
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Fibtimer Timing + 64.6 %
S&P 500 Index +
46.5 % |
1
Year Results
Fibtimer Timing + 10.8% S&P
500 Index + 7.3 %
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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.
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.
See
our 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;
© 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. |