Stock Market Trading
Stock Market Timing
Market timing is a strategy, system analysis or any other activity, the purpose of which is to specify correctly the time to buy and when to sell. In a broader prospective, it defines the right time to trade long (bullish trade) and the right time to trade short (bearish trade).
In the majority of cases, market timing is based on the elements of technical analysis that use past prices, volume and other market-generated data to forecast future price movements of stocks, indexes or any other securities. Still, many professional portfolio managers use elements of fundamental analysis in stock market timing and it would be wrong to say that market timing is a derivative of technical analysis only. In most cases, even when fundamental aspects (such as asset allocation, etc.) are the basis of a trading choice, technical analysis tools are included in the timing model. If you look at any market timing model, the odds are high that you may find various elements of technical analysis, starting from simple charting and finishing with artificial intelligence to analyze complex algorithms. Besides the fundamental and technical approaches, you may see market timing models that use economical and political analysis to predict and time the market. Although it may sound strange, you may even find stock market timing models that contain astrological elements.
The main purpose of the market timing strategy or system is to beat the market's performance. Usually the market is described by indexes. Such indexes as the NYSE composite index (^NYA), S&P 500 index (^SPX), Dow Jones Industrials index (^DJI) andNASDAQ 100 index (^NDX) are barometers of the U.S. Stock Market. When market timing strategy is mentioned, it is assumed that the goal is to beat the main indexes. If a timing model cannot beat a "Buy and Hold" index trading strategy, there are no reasons to invest in this model. It might be cheaper and more profitable to buy QQQ, SPY, DIA or any other ETFs that track an index's performance and hold it.
Since indexes provide a benchmark of the market, the majority of market timing systems include an index analysis. The index analysis could be used to select stocks that have better than index performance or to time the index itself, etc. Some of the most popular timing models are dedicated to time QQQ, SPY, DIA and other Exchange Traded Funds that track the indexes.
Still, every active trader and investor should remember that no matter what is used to time the market, whether it is fundamental analysis, technical analysis or something else, none guarantee the future performance of the stock, index or any other security. There is always a risk involved in any type of trading.
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