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What is Market Timing?
Timing
is everything in today's volatile markets. However, misleading signals and
ambiguous chart patterns often leave traders in a quandary over the real
market direction.
"Market timing is one of the best
ways to control risk."
Market Timing:
- Market timing has shown itself to be futile in every study ever
conducted. The idea of market timing and the reality are night and
day. The idea is very compelling. It presupposes you can be on the
sidelines when the market goes down and in when it goes up. If you
could do that you'd be richer than Warren Buffett. The reality is it
leaves most people in the market when it's going down and not in when
it's going up.
- Many argue that using any market-timing tool is a waste of time.
- Forecasting asset prices is a problem that has fascinated
investors since the very advent of financial markets. Accurate
predictions of the stock market movements imply fast and substantial capital
gains. Attempts to forecast stock prices are numerous.
- The principle objective of market timing is to provide investors
with the opportunity to avoid major market price declines. Obviously,
if investors can avoid weak periods in the market and participate in
the strong, they can also experience superior returns over a
buy-and-hold trading strategy. What is surprising is that studies show that
investors can still outperform a buy-and-hold trading strategy, even if they
don't participate in the strongest times - as long as they escape
major market declines.
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