Seeking Alpha

TimerFrank's  Instablog

TimerFrank
Send Message
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
My blog:
Market Timing Pro
View TimerFrank's Instablogs on:
  • Handling Stock Market Hardballs

    As a market timer, the one thing we must always remember is that the markets can, and most definitely will, throw every possible hardball, curve ball, fast ball, knuckle ball, etc. at us.

    The reason we invest in the stock market is because we recognize the huge potential for profits. But we are timing in a freely traded market that is subject to the emotional whims of traders. And when money is involved, those emotions can, at times, be extreme.

    We became market timers because we have realized that not only is there no easy money but also that the stock market will do all it can to relieve us of our money.

    We are more than uncomfortable with the buy-and-hold approach to investing, and realize that although buy-and-hold may be fine if you are willing to wait 20-30 years, it can lead to huge losses over shorter time frames. The most current example being 2008 when the S&P 500 and the Nasdaq Composite gave up 50%. Huge losses.

    The stock market is the ultimate of Big Leagues, and there are traders who understand the psychological warfare you are facing, and know how to use it to take your money.

    Understanding those Big League rules, will put the winning odds back on your side. The timing strategies at Fibtimer are designed to identify and follow trends. They allow profits to ride and cut losses short. This is what the professionals do, but most individuals have great difficulty doing.

    Market Timing is Unique

    Market timers face psychological battles that very few people ever face in their entire lives. There are so many differences between the emotions experienced in trading the financial markets, and what we experience in our lives, that it can easily interfere with our ability to trade.

    If we can identify those emotions we can take steps to protect ourselves from them, stop them from influencing us, and become winning (profitable) market timers and traders.

    For example, in the workplace, working hard and expecting to be justly rewarded for it are part of the American dream. Who would argue with the logic?

    But in the stock market, work as hard as you can and the markets will still reverse on you and give you losses. Make the perfect trade and it can still go bad.

    This is because timing the markets is not about our work ethic. It is not about genius or luck. It is about numbers and probability.

    Numbers and Probability

    Toss a coin 50 times and you can expect 25 times it will land heads up, and 25 times it will land tails up. But there is no rule that says the first 7 tosses will not all come up tails.

    Once we realize that over time the numbers "always" add up in our favor, we can more easily endure the short term swings. The market "hardballs." Being prepared for all that the market can throw at us, helps us to stick with our trading strategy.

    Once you face the fact that market timing isn't easy money, or that you won't become rich overnight, you will be able to prepare yourselves mentally for the long haul.

    If you expect that at times there will be losing trades, you won't be disappointed when they happen. You will have your eyes set on the big picture, which puts the odds in your favor over time.

    The Trading Edge

    There are two important aspects of any successful market timing strategy or trading plan, and both need to be considered.

    1. Probability - We know that over time, that if we flip that coin enough times, it will land 50% heads up, and 50% tails up. We can count on this. A string of tosses that have the same outcome mean little, as long as we keep tossing the coin.

    2. Risk vs. Reward - Potential rewards (profits) must be greater than risk (losses).

    By looking at the history of the stock market over many years, we see that most of the time it is either trending up, or it is trending down. In fact, about 80% of the time it is in long term trends. The "fact" that trending markets are the norm, is our market timing "trading edge."

    Knowing that the laws of probability are on our side over time, if we can establish that risk vs. reward is in our favor, we can use these odds to create a trading strategy.

    If each toss of the coin has even odds, but some tosses remain "profitable" for long periods of time, while those tosses that are unprofitable are of short duration and limited un profitability (losses kept small), we know that we will win over time as long as we make all the tosses.

    At Fibtimer we trade all trends. No one knows ahead of time which trend is the one that will continue for many months and make the big profits. All we know for certain is that the markets will spend more time "trending" than they will spend in trendless sideways trading.

    The RISK is that trading all trends produces some losses if one of the trends does not follow through.

    By trading "all" trends, we keep losses small because we do not stay with a losing trend. If the trend changes, we reverse position or go to cash according to the strategy used.

    The reward is that we will never miss a trend, and since the markets are in trends more than they are not, and we make larger profits when the markets trend than the small losses from trend failures, we are profitable more often than not.

    It is the in-between times (trendless markets) that require market timers to understand this logic. Stay the course, make all the coin tosses, and over time, you win.

    Conclusion

    Scary ideas are no longer frightening after you've acknowledged them and know not only to expect them, but that they are will not harm you if you hold true to your course.

    The more you can identify the scary aspects of market timing (or any trading), and prepare for every possibility, the more likely you'll be able to persist in the face of adversity.

    Market timing is challenging. Many who start fall by the wayside after they realize that it is not going to make them rich in days or weeks (amazing, but some really do expect that), or after one or two small losses.

    Remember, there are many timers out there who have met the challenge and have the winning track record to show for it.

    Look at Fibtimer's historical trading numbers. No emotion is involved so they look great over the years. But in the short term, there were some small losses.

    There are some years when profits match or are less than those of the indexes we track. But when there is a bear market, timing shines brightest. Not losing 50-80% of your savings in a single year is worth years of underperforming sideways markets.

    Focus on the war, not the small battles along the way. Stick with the trading plan and you will be successful.

    Jan 09 11:32 AM | Link | Comment!
  • Controlling Impulses; Key To Market Timing Profitability

    Winning market timers have learned to control their impulses. They can follow buy and sell market timing signals effortlessly. They show extreme self-control.

    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.

    Jan 02 2:02 PM | Link | Comment!
  • Money And Emotions

    Possibly the most difficult aspect of successful market timing is dealing with our emotions. Like oil and water, money and emotions do NOT mix.

    There is nothing wrong with emotions of course. A good love story can fill the eyes with tears. Injustice can fill your heart with anger, and a job well done can fill your soul with feelings of well being.

    But when it comes to dealing with your money, emotions can be your worst enemy.

    The same emotions which fill us with elation during times of joy, can also cause us to buy at market tops, to hold onto positions long after they become losers, and to give up when filled with despair, usually right at market bottoms.

    Take a look at a chart of the stock market. It is easy to see the emotional bottoms when everyone is selling at the same time.

    It is also easy to see the emotional tops, when everyone is buying at the same time. Huge spikes up on extremely high volume.

    Most of those sellers, and most of those buyers, will lose their money.

    Living In The Past

    Although there are literally thousands of books written about emotions and trading, the biggest problem market timers face can be easily summarized in four words;

    "Living in the past."

    Because we are all emotional about our money, taking a trading loss, or worse yet taking a big loss, has an effect on every future timing decision we make.

    What is the old saying? "Once burned, twice shy."

    But if you carry the emotional baggage of a losing trade (or several losing trades) around your neck, every decision you make going forward will be affected by it.

    You will enter trades too late, to make sure they are not going to become losers. You will exit trades too early, to make sure they do not reverse on you. The end result? Losses and even heavier emotional baggage.

    The Current Trade Is The Only Trade

    The most effective and successful market timers live only in the present. The current trade is their only trade.

    What happened last year, last month, or last week has no emotional bearing on their current trade. The trade is based on a successful strategy, and it will take care of itself. So why spend useless time worrying about it, and potentially sabotaging it?

    In other words, yesterday's trades are "out of sight and out of mind."

    Successful market timers look at those selling climaxes on the charts, and the buying frenzies, and see them for what they are.
    Emotional responses to fear and greed!

    Successful market timers ignore those emotional responses and instead trade the charts. They ignore the big ups and downs. They ignore the daily news and they especially ignore their know-it-all friend, who says "he/she" is absolutely right, and "you" are absolutely wrong.

    It's not about ego... it's about making money.

    Trade The Plan

    Trade the strategy. Trade the plan. Expect the markets to throw tons of darts at you, but stick to it anyway.

    Remember.... at emotional market tops and at emotional market bottoms, "everyone is right!"

    But a month or two later, although they may not admit it, better than 80% of those buyers and sellers will have lost a good deal of money.

    Sticking to a trading strategy helps combat those emotional feelings. The strategy says when to buy. The strategy says when to sell.

    Trading by emotions however, is doomed to failure from the very first emotional high.

    That is why we stick to our strategies here at Fibtimer. It is not always easy. Even after 30 years of timing the markets we feel the emotions everyone else does. But we follow the plan because experience has taught us it is the "only" way to ensure profits over time.

    Look at our various trade history pages. They show many large gains... but also small losses (though never big losses). Those who emotionally give up after a loss will never realize those profits. But those who "trade the plan" do!

    Because our timing signals are created "by" changes in the market, and because the only sure thing in the markets "is" change, trading the plan will always succeed over time.

    Dec 27 10:06 AM | Link | 1 Comment
Full index of posts »
Latest Followers

StockTalks

More »

Latest Comments


Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.