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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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  • Trading Trends For Profits

    In the financial markets, a trend is generally understood to be the current market direction. Markets can be trending higher, trending lower, or trending sideways.

    But defining a trend so that it can be profitably traded is something else entirely.

    Trends can obviously exist for one sector while another is going in the opposite direction, or no direction at all, and they can last for different periods of time.

    Just saying that a trend consists of "rising" prices, or "declining" prices is not enough. Every day is different. A trend must be clearly defined in order to be profitably traded.

    And what about time frame? Are we talking about a trend on a 5-minute bar chart where it could last an hour? Or is it of longer duration: days, weeks, or even years? If you are a mutual fund trader, trend lasting less than several months will be almost impossible to profitably trade.

    It is easy to determine trends on an historical chart. Looking at trends that have already occurred. But developing a trading strategy that will keep you on the right side of future trends is needed to profit from trend trading (market timing).

    Note that we do not say market timers can "predict" the future. We are not of the crystal ball camp that dooms many market timers to failure.

    Instead, we say that trends tend to last for periods of time that make them tradable. So identifying trends, and jumping on board, is the key to profitable market timing.

    Successful market timers know and use several facts about trends that give them an edge in trading them:

    1. While financial markets may spend time in consolidation (sideways trends), they are more often moving up or down for sustained periods of time.

    2. A timing strategy that defines trends can be used to take advantage of continued momentum in the market place.

    3. Trends tend to go higher, or lower, than most investors expect. So correctly identifying and trading a trend can be very profitable.

    4. Profitable trends typically occur only once or twice a year. The rest of the time the markets trend sideways.

    Because tradable trends only occur once or twice a year, market timers must be prepared to sometimes wait months before catching that one highly profitable trend.

    a. To be consistently successful over time, market timers must have clear rules telling them when to enter, and when to exit.

    b. When in a sideways trend, market timers may have trades that result in small losses, or small gains. These small losses and gains "must" be accepted because timers "must" trade every identified trend change. There is no way to know "ahead of time" which trend will be the highly profitable one.

    c. Market timers usually make the majority of their profits in only one or two trades a year. If you don't take every trade, you will likely miss the one that makes most of your profits.

    d. When the markets are in a bullish or bearish trend, trading position changes may not occur for months at a time as the trend progresses. Exiting early to lock in profits can cost you dearly. The trend must be allowed to play out without making unnecessary trades because of volatile short-term conditions.

    e. A profitable trading strategy will "not" allow a market timer to miss that trade!

    Correctly identifying and trading financial market trends with mutual funds, ETF's and even carefully selected stocks, is doable, profitable, and with a well-tested trading strategy can achieve results far above "buy-and-hold" investing.

    Market timing, when following a well thought out trading strategy, is actually "less" risky than a buy and hold approach. Imagine the benefit when all bear market losses are removed from the equation!

    The active investing style used in FibTimer's market timing strategies (identifying and trading trends) prevents huge losses in the inevitable bear markets (or any large decline that is of substantial duration).

    If bearish strategies are used in the timing strategy, declining markets actually add to profits as they did in our Bull & Bear Protimer Strategy in 2001-2003 and 2008-2009.

    Market timers, when following a well defined and tested timing strategy that identifies market trends, will consistently beat the market over any fair time frame.

    May 01 5:43 PM | Link | Comment!
  • The Trend Is Your Friend

    At Fibtimer we time the financial markets by identifying and trading trends. Over many years of research, we have found that no one can accurately predict the future of the markets consistently. They may do it once or twice (remember Robert Prechter of Elliott Wave fame in the 1980s?) but not over and over again.

    Predicting presupposes you have the ability to "see" the future. Much like a fortune teller. Beware any service that tells you they can see the future. No one can. If they could, every trader in the world would be after their signals.

    There are those who attempt to trade reversals. But first you have to "wait" for the reversal point to be reached, and then if you are incorrect, take a loss, exit the trade and await the next reversal point. Too much like fortune telling to us and really a system for short term traders who are very nimble.

    But there is a way of accurately being bullish during advancing markets, and being bearish or in cash during declining markets.

    Identifying and trading trends.

    What are the requirements and advantages of trading trends? First you must have a trend established before you can trade it. It also means you must wait until after the trend ends before you can exit it. But most importantly, if you trade trends, you will NEVER miss any bull market, nor be hurt by ANY bear market. Ever!

    This is an incredibly important advantage. Imagine never missing a bull market and never being hurt during a bear market. Or even profiting during a bear market. And all you lose is a few points at either the top of the bottom!

    Trend Trading at Fibtimer

    We would not have developed our timing strategies at Fibtimer without first researching the history of the financial markets, as well as the potential of all of the various timing strategies used by market timers.

    What we found, was that market trends are much more pervasive than most would think. In fact, trends could have been traded just as profitably 200 years ago, as they are today.

    Looking back at price data for 100 and 200 years, the very same trending markets existed. There were short times of sideways (non-trending) movement and long periods of strong advancing and declining trends. Yesterday, just as today, trading trends would be profitable.

    There are several important guidelines to successfully trading trends. Whether used 200 years ago or today, they are just as important. And they will be just as important tomorrow, ten years from now, or any time in the future, as long as free markets are traded.

    Highly Disciplined Trading Plans

    Successful trend timing strategies use highly disciplined trading plans.

    In the short term, the markets are run by the majority who are reacting to the emotions of fear and greed. It is "comforting" to be moving along with the crowd. That is why the majority do it. But it is NOT profitable.

    The "majority" do not profit.

    Executing a trading plan using unemotional buy and sell signals, designed to capture the majority move of all major trends whether up or down, removes destructive emotions from the equation.

    A market timer will undoubtedly feel pressure to disobey the plan. He may be swayed by advice from friends, current events, or the extremely powerful emotions of fear and/or greed.

    But if you stay with a trading plan that NEVER misses a trend, you will profit over time.

    If a trend fails, the trading plan must quickly reverse. If the trend becomes a long term highly profitable one, the plan must keep you fully invested and not allow you to exit during times of high emotion, when the crowd is exiting in droves.

    Ignoring Short Term Volatility

    Successful trend timing strategies ignore short term volatility in the attempt to realize superior profits during major trending markets.

    Trends can last months, and even years. During those profitable trends there will be corrections to the trend. Exiting at every correction leaves a trend timer on the outside looking in. Reacting to counter trend corrections often results in small losses. This is why Fibtimer holds its position during such corrections.

    The is an almost overwhelming desire to "act" in the face of an adverse market move.
    Often it is labeled "avoiding volatility" with the assumption being that volatility is bad.

    But avoiding volatility often inhibits the ability to stay with the current long term trend. The desire to have close stops, and to preserve "open trade" profits has enormous costs over time.

    Successful timing strategies do not avoid volatility. Instead the "depend" on volatility to profit.

    Finally, a successful trend timing strategy, never allows losses to accumulate. Trend timers are protected from large losses by their strategy. A good strategy never allows a failed trend to hurt capital. Trendless and/or volatile markets are inevitable and during trendless markets there may be some small losses. But a good timing strategy protects capital.

    You cannot avoid the occasional failed trend and you cannot avoid the occasional trendless market. But if capital is kept intact, when the next profitable trend begins you are ready to jump on board and ride it to the end.

    Conclusion

    At Fibtimer we publish a weekly analysis for each strategy to prepare subscribers for what is "likely" to come. Better to be prepared than to be hit with surprises.

    But we never presuppose that we are so smart we can tell, unerringly, what the markets will do next.

    Trend timers do not try to anticipate reversals or breakouts. They respond to them.

    Trend timers are not prognosticators. We just identify and follow trends.

    Trend timers believe the markets are smarter than any of us. We make it our business not to try to figure out why the markets are going up or down, or even where they are going to stop.

    Successful trend timers identify trends, trade those trends, and patiently allow them to play out while their profits grow.

    Predicting the markets is a fool's game. It is fun to do over cups of morning coffee, but if you want to beat the financial markets, you must identify and trade trends.

    You must also stay with your trend trading strategy through thick and thin. If no one can consistently predict where the markets are going, they also do NOT know when the next trend will begin. Taking all trades guarantees that you will never miss it when it start

    Apr 24 3:28 PM | Link | Comment!
  • Can You Predict The Future?

    Most investors believe they can predict the future. Or at least, that someone else can. At Fibtimer, we rely on the fact that most investors are convinced they can predict the future. This is where most of our profits come from. Their errors.

    In the world of investing, it is prices, not investors, that predict the future.

    Looking For The Holy Grail

    As our subscribers know, Fibtimer identifies and trades trends. We do not use hocus pocus to forecast the market's direction. We identify the trend and go with it.

    Over many years of market timing we have realized that trying to predict the future course of the financial markets is a sure path to losses. But trading trends, which is not predicting but going with the already identified direction of the markets, has produced consistent profits for as long as free markets have existed.

    But this is just too simple an answer for most investors.

    Looking for the Holy Grail, investors spend untold sums of money on analysis software, trading systems, and market gurus. All in order to predict the future.

    However there is no Holy Grail. There never has been and there never will be.

    But this doesn't mean profits, indeed huge profits, cannot be made in the markets.

    They are just not made by most investors.

    True Believers And Greater Fools

    Interestingly, Fibtimer profits because we rely on the fact that most investors and traders believe they can predict (forecast) the future.

    As these investors buy and sell, the "Greater Fool Theory" kicks in.

    Investors buy a stock with the belief someone will pay more for that stock in the future. This continues as a stock is traded up in price. As more investors buy and sell the same share for higher sums, sentiment begins to build that higher prices and profits are almost a certainty.

    As more investors believe they can buy a share and sell it at a higher price (looking for the "Greater Fool"), more and more investors (believers) jump on board. Investor psychology in its most basic form.
    Of course, someone has to wind up holding those shares with no one interested in buying them. This is when the trend changes.

    The "Greater Fools" are holding shares they cannot sell without a loss. As sentiment changes, the markets begin to drop. Eventually the new trend, to the downside this time, builds a head of steam. Investors feel they can (or must) sell shares. They will be able to buy them back at a lower price. (The Greater Fool Theory in reverse).

    Market trends are born of changes in sentiment. Fibtimer trades the trends created by the the tens of thousands of traders and investors who make them.

    Trend After Trend

    Trend, after trend, after trend. All defined by changes in price. They are rarely forecasted, or there would not be so many investors on the wrong side of trades.

    But trend traders, who understand that investors move with a herd like mentality, can use this information to profit.

    As the herd starts moving in one direction, what changes? Price.

    Using price to determine trend, then jumping on board the trend and riding it till the end, is where true profits lie.

    Don't Let Anyone Tell You

    Do not let anyone tell you they can forecast the future direction of the markets. We will not tell you that we can do it, and we hope you will not let anyone else convince you they can.

    Obviously, if 100 market forecasters make predictions, someone will be right. But consistently being right is another story entirely.

    Following trends, determined by changes in price, is the only consistent path to solid profits. It is not right all the time. Nothing is. But trends usually move much farther than anyone ever expects, and in trading those large trends, huge profits are made.

    Nothing Has Changed

    Change is constant. Because change is constant, uncertainty is constant.

    From uncertainty, trends emerge. Sentiment changes, true believers begin to buy into the new rally, and another trend is born. Over, and over, and over. Month after month and year after year.

    The markets have come a long way in recent years, with instant quotes, trading software, a mind numbing array of technical indicators. But one thing that has not changed is investor's reactions to change. Fear and greed still hold sway.

    Fibtimer exploits the reactions of investors. Those reactions are embedded in prices and lead to trends. In this respect, though trading is now done at the speed of light, nothing has changed.

    Apr 17 3:48 PM | Link | Comment!
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