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.

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.

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:

"...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?"

Such people tend to have trouble taking risks. They prefer a sure thing, and any "single" market timing 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!

The good news is, you don't have to be an aggressive market timer to achieve large profits. Trading sector funds with a solid timing strategy is not only profitable, but drawdowns are usually very small because sector timing strategies are very diversified.

Trading the sectors deserves your consideration.

Trading The Sectors

How does a mutual fund market timer take advantage of stock market volatility, while protecting himself or herself from the very real risks such volatility creates, as well as from the potential drawdowns that can occur?

The answer is by trading specific industry sector funds. Here is a "quick" list of reasons why:

1. Diversification: By having small positions in multiple industries, you reduce exposure to any single industry being affected by a negative news event.

2. Volatility: While individual sectors are no less volatile than the rest of the market, they do not move together. So the volatility to one's portfolio is considerably reduced.

3. Drawdowns: Because sector funds go to cash during sell signals, and because there are always some funds in bull markets at the same time there are others in bear markets (during which those sectors are protected in money market funds), drawdowns are kept to extreme minimums.

4. Good in All Markets: There are always single industries in their own bull markets. Even during a cyclical bear market, such as we experienced during 2000-2002 as well as 2007-2008, there were always some industries moving higher. And if not, you are still protected by being in money market funds.

5. Active Timing: Though sector timing is not aggressive, it is certainly active. You will always be trading the bullish sectors, and exiting the under performing ones. In some respects, it is the equivalent of running your own well managed mutual fund.

6. Trends: Industry sectors tend to trend. And when they trend, they often move further (in either direction) than anyone expects. During a strong bull run, it is common to find individual sectors that double the gains of the overall market.

Winning The Battle

The FibTimer Sector Timer strategy covers 16 industry specific sector funds found in the Rydex Fund Family. Several other widely used fund families also have sector funds, including Pro Funds and Fidelity Funds, that can be used with our sector timing signals.

Even in volatile market conditions during which the overall stock market is performs poorly, the FibTimer Sector Timer has performed exceptionally well.

Sector timing is proactive money management at its best. Constantly putting your money in the strongest sectors while removing it from the weakest sectors.

This is where the diversity inherent in sector timing stands out. Top performing sectors are where your timing funds are allocated, and no one sector can cause irretrievable damage to the portfolio should that industry collapse without warning.

Conclusion

Over the years, sector fund timing may go down as one of the best strategies ever created. Its ability to move funds into only those industry sectors which are performing well keeps it profitable in most market conditions.

The low drawdowns, low volatility and diversification inherent in sector timing, not to mention strong profitability, cause this strategy to stand out from all the others.

In volatile market conditions sector timing can create profits when other traders are lucky just to be holding onto their capital, while drawdowns, if they occur at all, become almost a non-event.

While sector timing may not make huge gains during bear markets, being mostly in cash, the strategy will protect your investment capital. And it will then outperform during bull markets, always keeping you invested in those industries that are in their own bull markets.

Caveat.. sector timing does require active participation. The FibTimer Sector Timer requires that subscribers check the online report each evening or at least check their email for our Evening Update Report for any changes (the Sector Timer is updated daily).

Sector timing also requires a minimum account size. Remember, there "could" be as many as 16 open positions at any one time, and closed (bearish) positions should be in cash (money market funds) with those funds remaining untouched. A good guess is that a sector timing portfolio should be at least $25,000 to start.

Shares of IShares Silver Trust (NYSE: SLV) posted an interesting bullish chart pattern on Monday, May 20th.

There has been little in the way of bullish anything for SLV since back in August 2012. With the exception of a few bullish weeks, the trend has been decisively down.

The pattern we noticed yesterday is on the daily chart. It was a bullish outside reversal day. This occurs when the intra-day lows and highs were greater than the prior day's trading range and the close was at the highs.

In this case, it occurred after an extremely bearish month, and the day opened at a new trading low. The direction changed and SLV closed dramatically higher than even the prior three trading days.

Chart Courtesy of StockCharts.com

Typically such days are followed by a change in trend, at least for awhile and sometimes for a new sustained trend.

We need to see follow through to confirm a change in trend. As of Tuesday, may 21st, we do not have confirmation.

It is worth keeping an eye on SLV for a possible bullish trade.

The Fibtimer.com (http://www.fibtimer.com) ETF Timing Strategy does not have a position in the IShares Silver Trust.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Rather than give into their urges, they stick with their timing strategy knowing there will be days when they are in the red, but that over time they will be profitable and also (importantly), they will never suffer a big loss.

Depending on your personality, you may have difficulty controlling your impulses. But whether you find discipline easy to control or difficult, there is much that can be done to ensure you follow your timing strategy.

Regret Comes Later

The most common way market timers act impulsively is by abandoning their timing strategy.

Once you decide to follow a specific timing strategy, it is vital to follow it. But this can be difficult to do. Even though we have years of experience here at FibTimer, that does not mean we do not have the urge to change a trade.

Those years of experience have not dulled our emotions, but they have taught us to stick with our timing strategy. Like anyone else, we learned the hard way. We exited strategies with the best of intentions and with great conviction. We also lost money almost every time.

It seems easy when you first start following a strategy, but while in the midst of a bullish or bearish position, it can be hard to stay with it.

At any given point, you may look at the market action and think, "there's no way this trade can work."

If you are an extremely seasoned timer, you have the experience and judgment to stay with the strategy. Novice market timers, in contrast, tend to abandon their plan prematurely, and regret it later when they find that had they been able to stick it out a little longer, they would have made a greater profit, or avoided a big loss.

It may be hard, but novice market timers must fight the impulse to exit a position prematurely.

The Big Picture

The first step to gaining impulse control is to identify the "reasons" you want to control your impulses... in other words, the downside of abandoning the timing strategy.

The obvious reason market timers desire to stay with a strategy is to maximize profits. The profits on winning trades must compensate for losses on losing trades.

Following a well-defined timing strategy usually insures profitability overall. You will have an easier time sticking with your plan if you frequently remind yourself that in the big picture, following the strategy is the key to profitability.

You may even want to write it down on a post-it note and stick it on your screen, so that while you are struggling to fight an impulse, you'll remember why you are doing it: The more discipline and self-control you achieve, the more profitability you'll achieve in the long run.

Fear And Greed

Many times impulses are difficult to control because of emotional states.

The emotions of fear and greed are the two most compelling urges that trick market timers into abandoning a perfectly good timing strategy. Exiting a timing strategy may give you a good feeling for a day or two, but you will have joined the "herd," of millions of investors. And overall, the herd loses money.

By self-monitoring your emotions, you can identify how they lead to impulsive decisions. By identifying how fear and frustration precede impulsive decisions, you can control these emotions and remain disciplined.

It takes time to control emotions. Don't give up. Staying with a timing strategy through a difficult period, and then realizing you have not only beaten the market, but also your own emotions, is very rewarding.

Staying with a timing strategy for several years, and looking back at the huge up and down market swings caused by the emotions of investors (the herd) and realizing that you not only avoided them, but steadily achieved a profit when most have lost money, is incredibly rewarding.