Seeking Alpha

TimerFrank's  Instablog

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:
  • Markets Go Up, Markets Go Down

    Markets go up, markets go down.

    It shouldn't matter much, but many new market timers find that their own personal mood fluctuates with the markets, moving from extreme euphoria as the markets soar to new heights to deep despair when the markets plunge to abysmal lows.

    Why do market trends have such power over emotions?

    They don't need to, but many new market timers have difficulty cultivating an objective mind set.

    Following The Masses

    By allowing fear and greed to influence their trading decisions, new traders tend to follow the masses, and when they go with the crowd, they soon find that market trends not only influence their moods but their account balance as well.

    There's a strong tendency to follow the crowd. There is a feeling of safety in numbers. When you see a steady upward trend, you feel secure. Everyone is buying.

    They are all doing the same thing. When other people offer confirmation of your decisions, you feel safe and assured.

    In a bull market, it isn't so bad to follow the crowd. When it's a strong bull market, the crowd is often right, and it makes sense to follow them. However, when the market turns around, feelings of safety and security can turn instantly into fear and panic.

    Humans Tend To Be Risk Averse

    Why? An obvious reason is that many new market timers don't have the ability or financial resources to sell short, and take advantage of a bear market.

    But there's a psychological issue as well. It is difficult to know how to handle falling stock prices. For example, humans tend to be risk averse.

    Usually the price continues to fall, heavy losses are incurred, and as expected, disappointment and despair set in. When one is in a bullish position and the markets suddenly turn, it's hard to accept losses, and even harder to execute that sell signal, issued by your timing strategy, before more damage is done.

    Denial and avoidance set in. At that point, a market timer with a losing position panics, hopes that things will turn around, and waits for events that are unlikely to happen.

    Detached And Relaxed

    It's vital for your survival as a market timer to stay calm and objective. Don't let your emotions interfere with your decision-making.

    How do you stay detached and relaxed?

    First, following a non-discretionary timing strategy and knowing, absolutely, that over time it will be profitable, helps you to rise above strong emotions and allow the strategy to make the decisions.

    Second, accepting the fact that you'll likely see small losses as a market timer and that you should expect to see the markets turn against you. What is important is NOT to react like the rest of the crowd. Staying above the fray is the key to profitability and knowing that the money management rules built into your strategy will keep losses small and allow profitable positions to run as high as possible.

    Third, think of the big picture; the long-term profits across a series of trades are all that matters, not the result of a single trade.

    Develop A Logical Mind set

    Don't allow your moods to fluctuate with the ups and downs of the markets.

    By trading in a disciplined, methodical manner, you can cultivate an objective, logical mind set that isn't overly influenced by market moods.

    Armed with the right mind set, a disciplined trading approach, and a tested market timing strategy, you will be able to realize the huge profits of winning market timers.

    Oct 09 4:13 PM | Link | Comment!
  • Maintaining Discipline

    Profitable market timers are disciplined.

    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 often 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:

    Such people tend to have trouble taking risks. They prefer a sure thing, and no "single" 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!

    Oct 02 4:17 PM | Link | Comment!
  • The Impulsive Trader

    The Stereotype

    We are all familiar with the stereotype of the impulsive trader. Traders who are impulsively 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.

    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. Impulsive trading has led to the outright ruin of many traders.

    Delaying Gratification

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

    Participants were asked to decide between taking an immediate, small monetary reward (that is, $100 right now) or a larger reward given later, $500 in six months.

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

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

    Compulsively Impulsive

    Market timing, and all successful trading for that matter, requires that investors clamp down on emotional impulsive behavior. Market timing is possibly "the" perfect example of unemotional, non-impulsive and non-compulsive 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.


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

    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. And, those times are often in direct conflict with the prevailing market sentiment.

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

    Sep 25 12:22 PM | Link | Comment!
Full index of posts »
Latest Followers


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.