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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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  • 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
  • Discipline And Market Timing

    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 usually 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 any "single" market timing 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!

    Dec 19 11:09 AM | Link | Comment!
  • Trading Trends; Only For Winners

    Barraged With News

    Market timers following trends generate great returns over time because their buy and sell decisions are based on the one piece of information that counts the most. That information is "price."

    We are barraged with fundamental analysis, price earnings ratios, economic projections, news events, and a steady stream of TV and news analysts who tell us where they think the market is going.

    But the simple truth is... no one knows where the market is going next.

    The only absolute truth... is price. If prices are trending higher, the market is going higher. If prices are trending lower, then the market is trending lower.

    Two Kinds Of Traders

    News events in particular cause traders to make incorrect decisions, because they play on emotions. The urge to follow the crowd is normal. It is comforting. And in a strong bull market, it may just be correct.

    But in most circumstances, letting emotions push you into making trading decisions costs traders money.

    There are two kinds of traders.

    1. Those who make emotional decisions based on any of the above.

    2. Those who make money off of those who make emotional decisions.

    Price Is Always Right

    It is hard to accept that one aspect of the markets, price, could be the one thing that is guaranteed to make you a successful market timer or trader.

    There are so many indicators, so much available analysis, but "price" is always right. It is "never" wrong. At the end of every trading day, price contains the input of millions of traders, the input of all technical and fundamental analysis.

    Do you remember Enron? It is a legend and many investors lost a great deal of money trading this once high flying stock.

    The thousands of investors and traders who owned Enron at $90 felt confident in their positions. Many "averaged down" when the price started dropping. But we wonder, after all the billions of dollars were lost in the Enron collapse, how many felt that way when shares hit 50 cents.

    Trend trading market timers "may" have bought shares at $90. But they were short most of the way down because they made their trading decisions based on "price."

    When the price started to drop, they reversed their small losses and changed to short positions. Many made huge profits as they rode this stock down.

    Losses, such as the billions lost by investors who held shares in Enron, are always reported by the media. But have you ever heard the media mention the other side of those losses?

    Or how much of those losses went into someone's pockets!

    How about the 80% decline in the Nasdaq in the 2000-2002 bear market? Or the 50% decline in the 2008-2009 bear market? The losses were all over the financial press. But were the gains on the other side of those losses mentioned. Our Bull & Bear Timer was up over 120% during those bear markets.

    Losses are news, gains apparently are not.

    Market timers following price trends profited during these declines. They were windfalls. But you will never read about it in the press.

    Following Price

    Price is objective. You can faithfully follow prices and make timing decisions based on them. You are able to determine trend changes, and most importantly, to exit those positions if the trend was a false one.

    And false trends do occur. Usually at market tops and market bottoms. But the losses in "trendless" markets are kept small by those who use "price" to establish trading strategies and risk management trading rules.

    And when the trends do take off, the profits are made.

    Market analysis is always subjective. It can not be trusted in trading decisions. Indicators work some of the time, but also can fail miserably. The financial news media is not even worth mentioning.

    Only price can be trusted. Only price is always right. Only using price to determine trends can lead you to profitable timing and a successful investing future.

    Conclusion

    Market timers must follow the trading strategies faithfully. Every sell signal must be followed immediately, and every buy signal as well.

    Guessing how far a trend will go is useless. No one knows. Price makes the trend.

    Discipline is the name of this game. Those who stand the test of time and make the trades, will over time, beat the markets, and will be investing winners.

    Dec 12 10:55 AM | Link | Comment!
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