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:
  • Want High Performance In Bull Markets Plus Safety In Bear Markets? Sector Fund Timing May Be Just For You.

    While aggressive timing strategies can achieve large profits over time, not every trader is emotionally able to handle them.

    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.

    May 22 5:04 PM | Link | Comment!
  • Discipline Equals Profits For Market Timers

    The winning market timer is the disciplined market timer. That very simply means he or she chooses a specific, dependable, market timing strategy and follows it.

    How Easily Discipline Can Fail

    The volatile market swings we are now experiencing are a perfect example. While certainly not typical, these huge up and down days can cause new market timers to freeze up and not follow important buy or sell signals.

    It is hard to BUY on a day when the market is down. It is hard to SELL into a rally. But unless we want to be one of the losing masses, we must execute the trades.

    Yes, current volatility is high, but experienced market timers know that such times usually occur right before a new (and often hugely profitable) trend starts.

    The point is... following your emotions will cost you money. Following one or more of Fibtimer's timing strategies will make you money, and importantly, will not allow you to take large losses in capital.

    What Better Reason?

    People differ greatly in terms of their ability to maintain self control and discipline. Those differences are why we write this weekly report; to drive home the fact that without following a timing strategy, most market timersand traders will be doomed to failure.

    Some market timers have no trouble whatsoever sticking to a plan. But others, when it is decision time, will find a reason "not" to take the trade. After some time passes, and they realize they have missed a profitable trade, they take the trade but enter at a price that is much higher or lower than was available had they followed the plan.

    They may or may not make a profit, but the odds have certainly turned against them.

    And what happens if the trading plan then calls for a reversal? A reversal that would have been profitable had they taken the initial trade?

    You know the answer. What better reason could there be to... again... NOT take the trade. This is when hope enters the picture, and hope is usually the second to last emotion felt before fear, which is followed quickly by losses.

    Develop Trust

    Let's consider a few ways that self-control and discipline can be maintained when making trading decisions.

    First, you must develop trust in your timing strategy. You should should know exactly what you are going to do when a signal tells you to enter a trade, and what you are going to do when a signal tells you to exit.

    One way to develop trust is to study the "Trade History" pages on our website for each strategy. A link to the complete real-time trade history for each strategy is on every FibTimer report. You will see that there are losing trades, but these are kept very small. You will also see the large winning trades which make the strategies successful over time. By looking at the trading histories, you will develop trust for the strategy you plan on following.

    Be prepared, and be willing, to make the trades when the signals are issued!

    At Fibtimer, we provide the buy and sell signals. We will make sure you know what to do well before the trade needs to be executed. We will also explain why the trade needs to made, and often the previous several weekly reports will have discussed the probability of an imminent change.

    Some traders make the mistake of assuming they can just "wing it" when the buy or sell signal comes. But this approach presents an excellent opportunity for the collapse of discipline. It often leads to "waiting" to see if the trade is successful before taking it.

    The problems with this logic are obvious, but they are not as obvious when it is time to make the trade and you are looking for a reason to delay making the decision.

    Develop Confidence

    Perhaps one of the best ways to maintain self-control, is to feel "confident" as you execute the buy and sell signals that we issue. You "know" that over time they will be successful. You "know" that during sideways markets the signals will exercise good money management techniques and keep any losing trades very small.

    It's healthy to be skeptical, but if it interferes with your ability to follow the trading plan, skepticism will cost you money. You must execute the buys and sells with unwavering confidence. You can't second-guess. You must follow the trading plan with absolute assurance that over time you will succeed.

    How do we post the excellent trading results that have been attained in our various timing strategies? Because the reports follow a disciplined plan. They follow the buy and sell signals without question. No if's, and's or but's. Accordingly, over time, they show the profitable results of sticking to the plan.

    Over time, disciplined trading becomes easier. But be careful not to minimize the importance of self-control and discipline. The more disciplined you can be, the more profits you will realize.

    May 15 5:04 PM | Link | Comment!
  • Beliefs Of Successful Market Timers

    Successful market timers, meaning profitable market timers, have several common beliefs that help them achieve consistent profits.

    On the flip side of this, those who are unsuccessful also have a set of common beliefs.

    It is a good idea to know which beliefs will help you to succeed, and which ones you may have, that need to be changed.

    Beliefs of Successful Market Timers

    1. I will not jump into a trade before or after a signal just so that I can be participating.

    2. I recognize that discipline is not a concept, it is an absolute necessity. The markets have a way of removing money from undisciplined market timers.

    3. I realize that what happens today, this week, or even this month, is not what is important. What "is" important is my success over time.

    4. I realize that losses are part of trading. No strategy is without losses.

    5. I accept that sometimes my investments will under perform the market, knowing that over time, they will outperform the market.

    6. I know that following a timing strategy through good times and bad are what will make me successful.

    7. I can follow a strategy for the long haul and stick with it, even when at times it is discouraging.

    8. I accept that following a timing strategy will require me to make frequent trades that may seem like mistakes. A string of small losses will not make me quit.

    9. I can ignore the mass media, which raise emotions and thus increase the risk of not executing a trade. It is often the trade that is hardest to take, that winds up being the most profitable.

    10. The markets provide a constant stream of opportunities. If I miss an opportunity, another one will follow.

    11. Keeping losses small and letting profits ride is not just a Wall Street saying.

    Beliefs of Unsuccessful Market Timers

    1. I must be trading all the time to be successful. I am uncomfortable when in cash.

    2. If my strategy is not doing what I think it should, I will make a change immediately.

    3. If I lose on this trade, I feel like a loser.

    4. If the market is rallying, I must get in even though my strategy gave no signal for it.

    5. I am unlucky.

    6. I get very upset when I miss a rally, or if I am in a bullish position when the market is declining.

    7. I dread adverse news events and constantly worry that something will happen to make the markets go against me.

    8. I can't afford to lose anything on this buy or sell signal.

    9. I can't go broke taking small quick profits.

    10. When this losing trade gets back to even, I'll dump it.

    Final Notes on Unsuccessful Timers

    Unsuccessful market timers tend to see the stock market as a place that will give them future riches and solve all their problems.

    Unsuccessful market timers have difficulty coping with the reality of being wrong. When events don't live up to their hopes, they seek to ignore them.

    If their timing strategy gives a sell signal and they have losses in that position, they have a difficult time executing the sell signal and they will hold the position so that they can exit when it gets back to break even.

    When things go bad, they often exit with huge losses and blame the strategy, the timing service, the markets. Everyone but themselves.

    Many market timers give up because they are usually too quick in judging small loses as a system that is not working.

    Giving up is the most common way a market timer can lose. You will win only if you execute the timing strategy. Every trade.

    Paper trading cannot simulate the psychological aspects of trading with real dollars. Once a market timer has experienced what it is like to keep trading through a draw down and how good it feels to follow the strategy through the good, the bad and the ugly days, he or she will not be as easily swayed again by adverse markets.

    Final Notes on Successful Timers

    Successful market timers know how to follow a strategy. They know the stock market is not a game and the only way to succeed is with a plan.

    As a successful market timer, you have to move from a fearful mind set to a psychological state of confidence.

    You must use a strategy that builds confidence by keeping losses small and letting profits ride when the markets trend.

    Do not focus too much on each individual buy and sell signal. It is where the strategy takes you over years of trading that is important.

    May 08 12:50 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.