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Frank started market timing in 1982 when the Federal Reserve cut interest rates and sparked the 1980’s bull rally. Realizing that this rally could have been forecasted, he began to search for indicators which had similar forecasting ability. Within a year, his first newsletter was launched,... More
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  • Maintaining Discipline 0 comments
    Dec 8, 2012 9:02 AM

    Profitable market timers are disciplined.

    They control their impulses and feelings, and this allows them to execute a timing strategy by never failing to make every buy and sell signal the strategy produces.

    The disciplined market timer is decisive. Many buy and sell signals are made during times of market volatility and often contradict the majority opinion. Going against the prevailing sentiment is tough, but critical to success.

    The undisciplined market timer, in contrast, wavers. He or she may stick with a timing strategy occasionally, while going a different way at other times.

    Discipline is indeed a key ingredient to success, but not everyone has a high level of self discipline. It is worth recognizing where you stand on this trait, and if you lack discipline and self control, work to build it up.

    Well Studied Personality Traits

    Discipline and self control are well studied personality traits.

    Some people are highly disciplined and very self controlled. They scrupulously follow rules, and are careful to control their impulses.

    You know the type; they pay off their credit cards every month, are never late for an appointment, and carefully plan every detail of their lives.

    Although these characteristics may be ideal for trading, there's a downside:

    Such people tend to have trouble taking risks. They prefer a sure thing, and no "single" buy or sell signal is rarely a sure thing.

    Market timers have recognized the even larger risks in a "buy and hold" approach to investing, and have decided to take a more active approach to growing their savings.

    They may not recklessly seek out risk, but they accept some risk as necessary.

    How Is Your Discipline And Self Control?

    However, market timers may not have the same degree of discipline and control as the rule followers described above. Perhaps that's why so many articles are written preaching the virtues of discipline and self control.

    How is your discipline and self control? Do you have trouble sticking to a timing strategy? Do you hesitate when faced with a buy or sell signal and look for reasons to justify "not" taking the trade?

    Do you long for more discipline and self control when it comes to your timing?

    It's not necessarily the case that a disciplined market timer is disciplined in all aspects of his or her life, but it helps. The life strategies we use everyday may bleed over into our investing life.

    If you find yourself second guessing timing strategies that you are following, try to remember that the key to timing success is making "all" of the trades.

    It is necessary to recognize that timing success is achieved by taking not just those trades which you agree with, but also by taking the tough trades. The ones which may even seem foolish at the time.

    There is no way to know "ahead" of time which buy or sell signal will be the one that is the beginning of the next big trend. The one you do not take, is usually the one that makes all the profits.

    The Hare and the Tortoise

    Timing success is similar to the story of "The Hare and the Tortoise." The hare may be fast, but the tortoise won the race because it never slowed, never stopped, but just kept moving forward.

    The hare was fast, but lacking in discipline. He also bragged about his success to everyone he saw. But he did not stay the course, and took a nap (missed trade?) at the wrong time.

    Discipline is easy when you are profitable. Discipline is not so easy when you are not.

    Yet the only way you will achieve market timing success is to stick to the strategy at all times. That means in good times, as well as hard times.

    Successful timing strategies are designed to keep timers in the right positions (long, short or in cash) the majority of the time, so that they can outperform buy and hold investors, and also avoid taking large losses during market corrections.

    They are not designed for instant profits. Some few day traders may achieve that, but like the Tortoise, timers are looking to win over time.

    Remember... if you find yourself wavering about taking a trade... once you are behind on a buy or sell signal, it is very hard to get back in.

    And lastly, the trade you do not take is inevitably the trade that makes all the profits!

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