TimerFrank's  Instablog

Barraged With News

Market timers following trends generate great returns over time because their buy and sell decisions are based on the one piece of information that counts the most. That information is "price."

We are barraged with fundamental analysis, price earnings ratios, economic projections, news events, and a steady stream of TV and news analysts who tell us where they think the market is going.

But the simple truth is... no one knows where the market is going next.

The only absolute truth... is price. If prices are trending higher, the market is going higher. If prices are trending lower, then the market is trending lower.

Two Kinds Of Traders

News events in particular cause traders to make incorrect decisions, because they play on emotions. The urge to follow the crowd is normal. It is comforting. And in a strong bull market, it may just be correct.

But in most circumstances, letting emotions push you into making trading decisions costs traders money.

There are two kinds of traders.

1. Those who make emotional decisions based on any of the above.

2. Those who make money off of those who make emotional decisions.

Price Is Always Right

It is hard to accept that one aspect of the markets, price, could be the one thing that is guaranteed to make you a successful market timer or trader.

There are so many indicators, so much available analysis, but "price" is always right. It is "never" wrong. At the end of every trading day, price contains the input of millions of traders, the input of all technical and fundamental analysis.

Do you remember Enron? It is a legend and many investors lost a great deal of money trading this once high flying stock.

The thousands of investors and traders who owned Enron at $90 felt confident in their positions. Many "averaged down" when the price started dropping. But we wonder, after all the billions of dollars were lost in the Enron collapse, how many felt that way when shares hit 50 cents.

Trend trading market timers "may" have bought shares at $90. But they were short most of the way down because they made their trading decisions based on "price."

When the price started to drop, they reversed their small losses and changed to short positions. Many made huge profits as they rode this stock down.

Losses, such as the billions lost by investors who held shares in Enron, are always reported by the media. But have you ever heard the media mention the other side of those losses?

Or how much of those losses went into someone's pockets!

How about the 80% decline in the Nasdaq in the 2000-2002 bear market? Or the 50% decline in the 2008-2009 bear market? The losses were all over the financial press. But were the gains on the other side of those losses mentioned. Our Bull & Bear Timer was up over 120% during those bear markets.

Losses are news, gains apparently are not.

Market timers following price trends profited during these declines. They were windfalls. But you will never read about it in the press.

Following Price

Price is objective. You can faithfully follow prices and make timing decisions based on them. You are able to determine trend changes, and most importantly, to exit those positions if the trend was a false one.

And false trends do occur. Usually at market tops and market bottoms. But the losses in "trendless" markets are kept small by those who use "price" to establish trading strategies and risk management trading rules.

And when the trends do take off, the profits are made.

Market analysis is always subjective. It can not be trusted in trading decisions. Indicators work some of the time, but also can fail miserably. The financial news media is not even worth mentioning.

Only price can be trusted. Only price is always right. Only using price to determine trends can lead you to profitable timing and a successful investing future.

Conclusion

Market timers must follow the trading strategies faithfully. Every sell signal must be followed immediately, and every buy signal as well.

Guessing how far a trend will go is useless. No one knows. Price makes the trend.

Discipline is the name of this game. Those who stand the test of time and make the trades, will over time, beat the markets, and will be investing winners.

Perfectionism may help some people succeed in many other careers. It is often the difference between success and failure.

We have all been brought up knowing that we must strive to be all that we can be, and to put everything into achieving our goals.

But perfectionism can be fatal in market timing (and all trading). Ironically, it leads neither to higher performance nor greater happiness. Anyone who approaches the financial markets with the intention of winning on every trade, or even on most trades, is in for a huge surprise.

Perfectionism can destroy your enjoyment of market timing. The perfectionist needs to be a winner in all or most of his or her trades. A losing trade may escalate to a panic-like state. It can even cause you to miss buy and sell signals out of fear of the results.

The drive to be perfect becomes self-defeating, as the individual often places the intense pressure on himself, which can become crippling.

Fear Of Failure

Probably the biggest obstacle to overcome as a market timer is the fear of failure.

If you have a perfectionist mentality when market timing, you are really setting yourself up for failure, because it is a given that you will experience losses along the way.

If you cannot take a loss when it is small, because of the need to be perfect, then the loss will often grow to a much larger loss, causing further pain for the perfectionist market timer. Holding onto a losing position, in hopes that it will return to break even, is a sure fire path to losses.

Trying To Control Uncontrollable Factors

Perfectionism causes timers to attempt to control uncontrollable factors in a trade (examples are; waiting for all the risk to be out and everything to look perfect, hoping or "willing" a better outcome by doubling down on a loser, cashing in on a profitable trade too quickly to be able to assure a gain, and many more).

When a market timer focuses on such uncontrollable issues, he or she is more likely to tighten up and not be able to pull the trigger when a new buy or sell signal is generated.

And remember, most buy and sell signals are generated when the prevailing sentiment is the opposite of the signal. That makes them harder to follow. But follow them you must if you wish to succeed.

Profits Are Achieved Over Time

We must remember that when timing the markets, it is the "total" gains achieved over a period of time that makes you a winner. Not any single trade. In fact, if losing on a trade is something that will cause you to second guess your next trade, you are very likely to lose money over time.

Perfectionism will eventually cause you to second guess and skip trades. It will grow into a fear that will hinder your ability to profit.

The only way to conquer fears. To control the emotions of fear and greed which make most traders lose in the financial markets, is to follow an unemotional timing strategy.

This is what we do here at FibTimer. Unemotional strategies that follow trends will never miss any sustained trend. This is why committing to a tried and true timing strategy is the only way to win in the financial markets.

When following a strategy, you are not swayed by fear or greed. You cannot be moved by perfectionist tendencies. The strategy makes the decisions. Emotions are avoided. But you must commit, in order to succeed. Bypassing one's ego and committing is tough to do. But in doing so, you beat the market and profit.

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 usually 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:

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!