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:
  • The Compulsive Impulsive Trader

    The Stereotype

    We are all familiar with the stereotype of the compulsive trader. Traders who are compulsively looking for trading thrills, while telling themselves they are doing it to make a profit.

    The rush of adrenalin that comes from making the "big" trade and then watching to see if it is followed by a "big" win.

    It is not so different from betting at the race track.

    It is far removed from what is required for successful market timing.

    Compulsive impulsive market timers take trades because of emotional responses to news events, market rallies, or market sell offs, because they "feel" they know what is going to happen next in the markets.

    They take trades not because the trade is required, but for the thrill of the trade itself. All risk controls are ignored, no logical trading strategy is followed, and no exit strategy is prepared ahead of time.

    Of course anyone can act impulsively at times. But in the investing world, impulsive trades are almost always losing trades. And compulsive impulsive trading, can lead to outright ruin.

    Delaying Gratification

    An interesting test was run to measure a person's impulsive tendencies:

    Participants were asked to decide between taking an immediate, small monetary reward (that is, $200 right now) or a larger reward given later, $500 in six months.

    Impulsive people tended to take the smaller, immediate reward. They have difficulty delaying gratification. They can't wait for the larger reward. They want what they can get as soon as possible.

    Even disciplined people can act impulsively when the conditions are right.

    There is little harm in impulsively going for a latte instead of your usual morning coffee, black with two equals.

    Yet while some impulsive decisions may have little effect on one's life, impulsive decisions when trading the stock market can have major negative consequences.

    Compulsively Impulsive

    Trading (market timing) requires that investors clamp down on emotional impulsive behavior. Market timing is possibly "the" perfect example of unemotional, non-compulsive and non-impulsive planning. Timers look far ahead in time, planning for gains that may not be realized for months. If in cash during a bear market, actual profits may be postponed years.

    Instant gratification is the exact opposite of what market timers must expect. Those who think that long term buy-and-hold investors hold the edge in long term planning are not correct. It is market timers, following a plan that takes years to unfold but offering gains far in excess of a simple buy-and-hold, who have the real long term strategy.

    Conclusion

    Compulsive traders will have great difficulty being successful (profitable) market timers. Market timing is the non-compulsive execution of a planned strategy, that can only be successful over time.

    Impulsive traders will have great difficulty being successful (profitable) market timers. Market timing requires adherence to a trading strategy that requires trading not when you feel the urge, but only at specific points in time when your trading strategy tells you to do so.

    Compulsive impulsive personalities face many difficulties. But in investing, be sure to hold those impulses at bay if you want to successfully beat the markets.

    Jun 12 11:50 AM | Link | Comment!
  • Market Timer, Know Yourself

    Fibtimer's success depends on "your" success. We want you to be successful. To achieve this requires not only successful market timing strategies, which we provide, but subscribers must also follow those strategies correctly.

    One of the most difficult tasks for us at Fibtimer, is trying to help subscribers understand what is required to achieve success in market timing. We can publish the reports, but if the strategies are not followed correctly, the odds of being profitable diminish.

    This commentary covers some of the questions we would ask every subscriber if we could talk to them personally.

    Know Your Limits

    Subscribers should use the strategies that suit them best. We have aggressive, active, and conservative timing strategies. Make sure you know what sort of timing strategy you are emotionally able to handle.

    A novice market timer, who jumps right into an aggressive timing strategy, might have a difficult time when facing several trades in a fast market. It does not happen often, but it can happen.

    If you are conservative, use a conservative strategy. If you are a bit more aggressive, use the active strategies. Remember that you do not have to make lots of trades to be profitable. During volatile markets our more conservative strategies are often the best performers.

    Jumping The Gun

    Another concern is new subscribers who trade immediately. Entering a new position "before" a new bullish or bearish signal has been issued. We understand the urge to jump in and get started, but in reality, "mid-signal" entries are usually more risky than waiting for a new buy or sell signal. When a subscriber enters on his or her own, mid-trade, the result may be losses that should never have happened.

    Patience is a key element to successful market timing. You cannot rush profits. You "can" rush losses though. So take your time and enter properly. You have years of timing ahead. The markets have been around for hundreds of years. They are not going anywhere. Wait and do it right.

    The Strategies

    Our conservative and active strategies are designed to manage risk in volatile, or sideways markets, and to correctly place us in bullish or bearish trends when they occur.

    Aggressive strategies often make their biggest gains during bear markets. When everyone else is losing, the bearish positions are making profits. A 20% market loss equals a 20% gain for the timer, which is 40% better than the market.

    The aggressive strategies are often, though not always, the most profitable over time. But if you exit the strategy after a small loss, you will not be profitable when the strategies catch a strong bearish (or bullish) trend.

    There is an old saying, "If you cannot accept a loss, than you will never succeed in the markets." If you feel you will worry over multiple trades, or may not have the discipline to stay with trades that at times go against the market, use the conservative or active strategies.

    Diversification

    This all brings to mind the next important subject. Market timers should diversify. Putting all your eggs in one basket just does not make sense. No strategy is perfect. Every strategy will have periods of non-performance. This is a fact of trading the markets.

    If you have all your timing funds allocated to a single strategy, you are just hurting your chances of success. If you have the funds available, use several strategies.

    If you do not have the funds available to diversify properly, stay with the Conservative S&P Timer. It just makes sense. if you do, consider the Diversified Timing Strategy which has diversification built in.

    Committing

    Finally, there are those subscribers who wait to see if a signal is correct before following it. This again diminishes the ability of our risk management, built into the strategies, to work correctly.

    In the aggressive and active strategies, the price we enter at, can be quite different than an entry made two or three days later. This potential is somewhat lessened in the conservative strategies which typically hold positions for considerably longer periods of time, but still should considered.

    Jun 05 2:48 PM | Link | Comment!
  • Immediate Profits Vs. Delayed Rewards

    Trading, just because we are itching to do something, can be dangerous to our financial health. Very dangerous.

    Our eyes should be focused on the future, and that is what market timing is all about. Following a strategy that beats the market "over time," and protects capital during bad times.

    In this commentary we look at the psychology of trading. The need for immediate rewards and the inability of so many to recognize the value of delayed rewards and follow a plan to achieve them.

    Why do so many investors and traders fail to achieve profits? One of the reasons is below.

    The Need For Immediate Winning Trades

    The term "impulsive" is often used to describe people who "can't wait. They can't delay; they've got to have it now." So they are willing to forgo something better that comes later in order to get something right away.

    This is not a trait you want to have as a market timer.

    If someone offered you a choice between a smaller amount of money ($300) available immediately and a larger amount ($1,000) that could be received after a specified delay (3 years), which would you take?

    You would be surprised at how many would take the $300. In fact, a great deal of the buying and selling going on in the stock market every day is by those who are looking for that quick $300. Very few are thinking about the $1,000 and even fewer have a strategy to achieve it.

    Why is it people engage in behaviors, the long-term consequence of which is worse for them? Why do you have that incredible chocolate cake right "now" when you're trying to lose weight, or trying to stay healthy, or trying to stay fit?

    One of the reasons is that being healthy or being fit is a "delayed reward." It occurs later.

    While the desire to succeed in market timing is perfectly fine, the desire for immediate profits and winning trades is not. It clouds the real goal. Making large profits over time. A goal few investors ever achieve.

    Motivated By Immediate Rewards

    The market is unlikely to hand "immediate awards" to you. Although market timing is all about being profitable, it is not about satisfying our emotional needs. Rather, it is the following of a rational plan to create wealth over time.

    A winning market timer must tirelessly execute a trading strategy that will often come into conflict with the timer's emotions.

    The outcome of any one buy or sell may not produce a profit. It's quite possible that the overall outcome of a series of buys or sells may not produce a profit. It is essential that these possibilities be acknowledged.

    People are motivated by rewards and in modern society that usually means money. The more money we are offered, the harder we work.

    Perhaps you were attracted to market timing because of the large potential profits you would make in the future. It's natural to want to receive a reward for your hard work. But if you expect an immediate reward for your effort and it isn't forthcoming, you'll be frustrated and disappointed. And when it comes to market timing, immediate rewards aren't always there.

    For example, everyone expects to get paid on the date their paycheck is due, but have you observed what happens when a paycheck is late? Everyone is quite frustrated and some people can get very angry. People were expecting a hard earned reward but received no reward.

    Unless one has the right perspective, market timing can feel that way also. One may put in an enormous effort and receive no "immediate" reward for it.

    If one is "expecting" an immediate reward, it can be frustrating and disappointing when it does not appear. That is why it is important to take the proper perspective with market timing, and the proper perspective can only be based by looking at timing results over a long time frame.

    The Big Picture And Laws Of Probability

    It is essential for a market timer to think in terms of the big picture, and in terms of probabilities. You must realize that the outcome of any one buy or sell signal is not significant. It's the outcome over time that matters.

    The more trades you make with a winning trading strategy, the more the law of averages will work in your favor, and across the series of trades, you'll be profitable.

    Market conditions, as we all know, are not always conducive to our plans. This is a reality of market timing and it's necessary to prepare for it. If you are aware of this, you'll be less likely to react emotionally to losing trades, and also less likely to make bad decisions when they occur.

    Seeing the big picture, and sticking to the trading plan, are the keys to timing success.

    Conclusion

    If you anticipate that you won't win on a single buy or sell signal, you will not feel disappointed when it happens.

    If you acknowledge that you may not profit even after a series of buy or sell signals, you will similarly be able to deal with it, bounce back, and be ready to take the next trade.

    But on the other hand, if you aren't prepared for these possibilities, you'll feel frustrated and disappointed. You may feel like giving up on timing.

    Some market timers hit the jackpot and start right at the beginning of a profitable trend.

    But typically, we start our market timing during difficult market conditions.

    The right perspective goes a long way in coping with the inevitable hard balls that the market throws at us.

    Those who stay the course reap the rewards over time.

    May 29 1:06 PM | Link | 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.