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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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  • Focus On The War, Not The Battle  0 comments
    Apr 12, 2013 9:47 AM

    Why do most traders lose most of the time?

    Why is it so many investors will stay with a position as it loses, hoping it will bounce back, instead of cutting their losses? And why do those same investors, when they have a winning position, take quick profits instead of letting the trend play out?

    It is all about emotions. Not wanting to lose. Wanting to feel good about a profitable position. But unable to make consistent profits.

    It's Not The Battle, It's The War

    Too many market timers believe their last trade is a reflection of just how good a timer they are (or how good their timing service is).

    This boils down to one word - expectation.

    If you expect to win all the time, or even the large majority of the time, you're setting yourself up for a lot of heartache.

    And the sad fact is, if you believe market timing is about winning all the time, you are also setting yourself up to be one of those many thousands of losing investors.

    To win as a market timer, you must focus on the war - not the battle.

    The fact of the matter is, this is to a large degree a game of odds, and should be played over a long period of time. Those market timers who recognize this fact, and do not pull out during a losing position will be the winners in the end.

    Market timing is about beating the markets, and all those "other" thousands of losing investors, over time. It is about following a timing strategy through thick and thin, and profiting over time.

    We write about this frequently because we are just as human as our subscribers. We know the emotions. We know the pressures. If we can make all of our subscribers recognize that sticking to the strategy over time is the key to success, we will have accomplished a great deal.

    The FibTimer historical trade pages (available by link from all subscriber reports) show the excellent profits we have made over the years. They also show small losing trades. It is to be expected in market timing and in fact in all trading. Be prepared for them so that they are not unexpected, and over time you will be successful.

    The "Worry" Factor

    All humans worry. If we didn't worry, we might take dangerous risks, and pay a steep price.

    Worrying is normal in our lives, and has an important function.

    However, worrying becomes a problem when you do it too often and for no good reason. For example, if your last timing trade was a loss, and you worry about it, you tend to think the same thoughts over and over again. It doesn't help much and you are likely to let it interfere with your ability to execute the next timing signal.

    Excessive worrying "can" be a problem for successful market timing.

    If you are the kind of person who worries all the time, it may interfere with your ability to pay attention to executing your market timing strategy.

    The solution? Think "long term." Remember, it is the "war" you are trying to win, not the current battle.

    The Difference Between Winning Timers And Losing Timers?

    LOSING market timers have unrealistic expectations about the kind of profits they can make, typically shooting too high.

    Losing market timers also debate with themselves before executing buy and sell decisions, and even dwell on a position long after it's closed out.

    Losing market timers pay little attention to money management, tending to enter and exit trades emotionally.

    And critically, losing market timers have no clear plan how, or when, to exit.

    WINNING market timers follow a strategy that uses strict money and risk management rules which keep them in a winning position as long as possible, and protect them against large losses.

    Winning market timers obey their chosen timing strategy faithfully, knowing it will not be profitable all the time, but that over time it will beat the market, and it will never allow them to lose substantial capital in a bear market.

    Winning timers take action instead of suffering "analysis paralysis."

    Winning market timers never allow emotions to take over, or have any part in, their timing decisions.

    Hopefully this second description fits you better, but if the first one seems a little too familiar, you now at least know how to start getting past that barrier

    Why Do We Focus On Emotions?

    We have been asked many times why we focus so much on emotions in our weekly commentaries.

    Allowing emotions to affect trading decisions is the number one reason why most investors lose money in the financial markets. Allowing emotions to affect timing decisions is also the number one reason why market timers fail.

    When emotions enter the picture, timers jump the gun on buy and sell signals. They exit positions before the strategy tells them to. Emotions cause them to abandon a perfectly good timing strategy and, almost always, it happens at a time when they wind up losing money.

    Why? Emotions run highest when you are in a losing position. But losing positions are an absolute certainty! So be prepared for them, or be prepared to make bad decisions, and lose capital.

    Giving in to emotions, makes you one of the vast herd of followers, trying to out-think everyone else, but in reality you are just moving with the herd. And the herd always loses in the end.

    To be successful at market timing, and in fact to be successful at any trading, you must follow a strategy that "removes" emotion from the equation.

    This means your trading plan "must" be totally removed from any discretionary input.

    If you can change the trade, you will!

    And if you change the trades, eventually you will lose.

    Choose strategies that match your emotional trading style, whether aggressive or conservative (and hopefully a diversified mix of both) and stay with them.

    The market timer who stays the course, winds up with the gains we post on the website on our trade history pages.

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