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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 With Discipline Key To Market Timing Success

    Winning market timers have learned to control their impulses. They can follow buy and sell market timing signals effortlessly. They show extreme self-control.

    Rather than give into their urges, they stick with their timing strategy knowing there will be days when they are in the red, but that over time they will be profitable and also (importantly), they will never suffer a big loss.

    Depending on your personality, you may have difficulty controlling your impulses. But whether you find discipline easy to control or difficult, there is much that can be done to ensure you follow your timing strategy.

    Regret Comes Later

    The most common way market timers act impulsively is by abandoning their timing strategy.

    Once you decide to follow a specific timing strategy, it is vital to follow it. But this can be difficult to do. Even though we have years of experience here at FibTimer, that does not mean we do not have the urge to change a trade.

    Those years of experience have not dulled our emotions, but they have taught us to stick with our timing strategy. Like anyone else, we learned the hard way. We exited strategies with the best of intentions and with great conviction. We also lost money almost every time.

    It seems easy when you first start following a strategy, but while in the midst of a bullish or bearish position, it can be hard to stay with it.

    At any given point, you may look at the market action and think, "there's no way this trade can work."

    If you are an extremely seasoned timer, you have the experience and judgment to stay with the strategy. Novice market timers, in contrast, tend to abandon their plan prematurely, and regret it later when they find that had they been able to stick it out a little longer, they would have made a greater profit, or avoided a big loss.

    It may be hard, but novice market timers must fight the impulse to exit a position prematurely.

    The Big Picture

    The first step to gaining impulse control is to identify the "reasons" you want to control your impulses... in other words, the downside of abandoning the timing strategy.

    The obvious reason market timers desire to stay with a strategy is to maximize profits. The profits on winning trades must compensate for losses on losing trades.

    Following a well-defined timing strategy usually insures profitability overall. You will have an easier time sticking with your plan if you frequently remind yourself that in the big picture, following the strategy is the key to profitability.

    You may even want to write it down on a post-it note and stick it on your screen, so that while you are struggling to fight an impulse, you'll remember why you are doing it: The more discipline and self-control you achieve, the more profitability you'll achieve in the long run.

    Fear And Greed

    Many times impulses are difficult to control because of emotional states.

    The emotions of fear and greed are the two most compelling urges that trick market timers into abandoning a perfectly good timing strategy. Exiting a timing strategy may give you a good feeling for a day or two, but you will have joined the "herd," of millions of investors. And overall, the herd loses money.

    By self-monitoring your emotions, you can identify how they lead to impulsive decisions. By identifying how fear and frustration precede impulsive decisions, you can control these emotions and remain disciplined.

    It takes time to control emotions. Don't give up. Staying with a timing strategy through a difficult period, and then realizing you have not only beaten the market, but also your own emotions, is very rewarding.

    Staying with a timing strategy for several years, and looking back at the huge up and down market swings caused by the emotions of investors (the herd) and realizing that you not only avoided them, but steadily achieved a profit when most have lost money, is incredibly rewarding.

    Jun 26 7:15 PM | Link | Comment!
  • Hope May Spring Eternal, But It Won't Make You Money

    As described in "Reminiscences of a Stock Operator" by Edwin Lefevre, "The speculator's deadly enemies are: Ignorance, Greed, Fear and Hope."

    Each of us has a desire for success. It is why we here at Fibtimer.com use market timing to guide us to profitability. Market timing not only increases our gains in bull markets, but also protects our capital against loss in bear markets.

    But if you are not careful, that same desire for success can stand in the way of your ability to recognize reality, even if it is right before your eyes.

    Hoping For Success

    All of us have a survival instinct that typically causes us to focus on good news. Bad news is avoided, or at least put on the back burner.

    When we take a position in the market, whether bullish or bearish, we "hope" it will be successful. Hope can be such a powerful emotion, that when the same trading plan that told us to enter a position originally, reverses and tells us to exit immediately, our emotions may very well focus on the possibility that if we just hold on a bit longer, any loss might be erased.

    Just give it another day. Just wait till it is back to break even.

    The only way to avoid this is to recognize that hope can destroy our ability to profitably trade the markets.

    Successful Market Timers Win Because...

    Market timing, in fact all trading, cannot be successful without a "plan." Trading by emotion, by news events, or out of fear, is not very different than gambling. Successful market timers win because they follow a plan.

    We all know that no person (trader or market timer) will be right all the time. Knowing this, we must accept that we will have losses.

    What separates the winning traders, from the losing traders, is their ability to recognize that when a trade turns bad, there is no emotion that can fix it. The only correct decision, is not really a decision at all. If you are following a good trading strategy, just follow the "plan." If the plan says reverse, then follow it. If the plan says to go to cash, then go to cash.

    Simple? Not if you cannot accept a loss. Then hope springs eternal. You can find a hundred reasons not to execute a trade. Anything to delay so that "hope" can work miracles.

    Winning market timers have their share of losses. But they keep the amount of those losses small. They follow their plan and "never" hold onto a losing position "hoping" it will break even or turn into a winner.

    In Vegas The House Always Wins

    When we go to Las Vegas, we know that the odds are stacked in favor of the house. But we gamble anyway in "hope" that we will leave a winner.

    But market timing is not gambling. When you trade with a "plan" you have an edge that you know will win over time, as long as you use discipline and follow it. Just as "the house" knows it will win over time in Las Vegas, the trading plan provides the "edge" that makes us winners.

    But once we lose that edge, and start hoping instead of following our plan, we become like the gambler in Vegas.

    And in Vegas, the house always wins.

    Hope and Your Ego

    Hope is also closely tied to ego. We do not want to admit that we have made a mistake. Our ego wants success, and wants it immediately.

    Losses do not feel very successful. Our ego can cost us a great deal of money.

    In order to make money, we need to keep losses small, while letting our winning positions run. Neither hope nor ego has any place in market timing or in any form of trading.

    Conclusion

    When you trade with a "plan," it is in black and white. You know when to execute a buy or sell signal because the "plan" tells you when. A plan does not rely on hope. A plan has no ego. A plan gives us, as market timers, an "edge" over the market and other traders.

    Each day we should examine ourselves. If we feel that hope is part of our trading plan, remember that hope is almost a guarantee of losses.

    The only way we keep our "edge" over the stock market, is when we follow the plan.

    Jun 19 3:37 PM | Link | Comment!
  • 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!
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