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:
  • A Butterfly Flaps Its Wings... Chaos Theory And The Financial Markets

    A butterfly flaps its wings... a hurricane strikes miles away.

    According to Chaos Theory, a seemingly irrelevant action can precipitate, and contribute to, a major event. The right set of factors comes together and a major event takes place.

    It's easy to imagine a fanciful chain of events that would initiate a market move.

    A housewife attends to her crying child who has tripped over the newspaper, and in doing so, leaves the refrigerator open during an unseasonably warm day. It breaks down, and the family needs a new one.

    To get funds for a new refrigerator and some added home repairs, she sells off a large chunk of IBM stock that her parents gave her as a wedding present.

    By pure chance, at the moment that she sells the stock, a specialist monitoring the action gets it in his head that the sale of a large chunk of stock means something, so he sells off his positions in the tech sector.

    Next, a financial reporter sees the sale and tries to interpret it. He reports that it reflects a shortage of silicon and suggests investors unload their tech stocks immediately.

    Many people follow his advice and a massive sell off takes place.

    Perhaps it seems a little unlikely that all of this can happen, but you get the idea.

    Just like how scientists claim, according to Chaos Theory, that a butterfly can start a hurricane, you can imagine that a few key seemingly minor events can start a major market move

    Is It Economic Factors? Or Fear And Greed?

    Many investors view the markets from a traditional long-term buy-and-hold strategy. They look at the markets in terms of fundamental variables, such as consumer confidence, demand, and general economic factors that impact a stock price.

    If a company makes profits that are in high demand, the price goes up.

    Market timers though, realize that many market moves are the result of psychological factors, such as opinions or emotions of fear and greed. In the short-term, anything can happen, and it is vital to keep this in mind.

    Nothing is certain in the markets, but is this something to worry about?

    Not if you take precautions. By precautions, we mean "following a strategy that uses the ups and downs (trends) of the market itself to generate buy and sell signals."

    This way you are always in the current trend, never miss a trend, and are never trading against the market's trend.

    Worry Can Be The Doom Of Market Timers

    Indeed, a potential chaotic event can be a good thing.

    The initial event that set off a market move isn't important. Who cares why the masses buy or sell, for example, as long as you take advantage of the move?

    Market timers must learn to view such moves as opportunities to profit.

    If you have a timing signal that is ruined by an unexpected adverse event...the chaotic nature of the markets coming to the forefront... there is no reason to worry.

    In fact, it is absolutely "going to happen." Signals will go against you. Accept this and you will profit. Worry so much that you jump out of a tried and true strategy because of a losing trade or two, and you will eventually fail at timing the markets.

    If you are following a trend, and it unexpectantly reverses, the (trend following) strategy will quickly reverse and place you right back on the right path.

    It is necessary to accept that trading can be chaotic. Anything can happen, but it doesn't need to be a source of worry. As long as losses are kept small, and profits are allowed to run, you will beat the markets.

    Worry can be the doom of market timers and traders, but if you accept the fact that uncertainty and chaos are part of the inherent nature of the markets, you will accept it when it occurs and recognize that this same chaos is what will make you profitable in the end.

    A losing trade here. A losing trade there. All meaningless in the big picture. By following trends, which is FibTimer's market timing specialty, you are always profitable over time.

    You profit in "all" of the big trends. By following trends with FibTimer's timing strategies, you are always with the big market moves when they occur...and there is always a big move (trend) just around the corner.

    May 23 12:09 PM | Link | Comment!
  • Rules For Market Timing Success

    There are several critical factors needed to be a successful market timer.

    Money does not accumulate in your account without some work on your part. In fact, market timing means pitting your emotional skills against those of the tens of thousands of other traders.

    Most individuals who invest in the stock market lose money. Many are not aware of that. Most investors and traders follow the majority (the herd) which usually buys and sells at the wrong times. They buy at tops, sell at bottoms, make emotional trading decisions based on news events.

    The "herd" does this for a reason. At the time they make their decisions, they "think" they are right! Emotions are powerful persuaders.

    This means, for "you" to be successful, you must be able to see past those urges to buy and sell, which will happen to you just as they happen to everyone else. If you can do this, you can succeed at market timing.

    But do not despair. Successful timing is not hard. You just need to follow certain rules of trading. Here are some important (critical) rules for market timing success.

    You Must Have An Edge

    We have discussed this in previous commentaries. You must have a proven trading "edge" that puts you into profitable positions.

    FibTimer strategies identify "trends" and trade them, in both advancing and declining markets, with great success.

    Research shows that the financial markets trend about 80% of the time. Our strategies exploit that knowledge. We care nothing about what newscasters say, or what the latest economic indicator is.

    This is our edge. The "trend" is where the profits are, and that is where we are.

    Disciplined Execution

    Having an edge is great, but if you cannot stick to the strategy that uses it, you will not be profitable. The urge to follow the crowd is enormously powerful.

    For example, let's say the market is in the midst of a two day super rally. You just KNOW the current sentiment is correct. You can feel it.

    But your timing strategy is not letting you follow the crowd, so you exit the strategy and go your own way.

    You have just joined the "herd."

    All too common, and usually it results in a loss.

    Effective Money Management

    The most common error made by new market timers is to place too much money into a single aggressive strategy right away.

    All timing strategies have losses. Good strategies keep those losses very small. But aggressive timing strategies are, as their name implies, "more" volatile than more conservative strategies.

    A new market timer, faced with an immediate small loss in an aggressive strategy, is very likely to be an ex market timer.

    They could have beaten the market if they had stayed the course, but the aggressive nature of the strategy they chose caused them to panic and leave.

    They could have followed a conservative strategy more in line with their emotional ability to trade. Fibtimer has them too. The number of trades does not indicate huge profits. You do not need to trade aggressively to win.

    Good timing strategies, such as those followed by FibTimer subscribers, control losses and keep them small. They will also identify trends and keep you in those trends until they end, thus capitalizing on as much profit potential as can be realized.

    There is an old saying, "keep your losses small and let your profits ride." If your timing strategy does this, you will be profitable.

    You Must Have A Plan

    This is where FibTimer enters the picture. We have battle-tested timing strategies which have gone through every kind of market condition imaginable, including the bear market of 2000-2002 which chopped 80% off the Nasdaq and 50% off the S&P 500, plus the 50% declines in the 2008-2009 bear market.

    By using our "edge" (trading trends) we are able to effectively profit in both up and down markets, while controlling losses in volatile sideways markets.

    Commitment

    You must have a determination not to quit when things are not going your way. Those who succeed in any endeavor have made a commitment to seeing it through both good times and bad.

    We began timing the markets all the way back in the early 1980s. It was trial and error back then, but we had committed to profiting from the financial markets, and that is exactly what we did.

    The same commitment, and following time tested strategies such as those used at FibTimer, are the keys to success.

    May 16 7:19 PM | Link | Comment!
  • Have The Markets Changed? Part 2

    Last week we began to answer the question asked us by many of our subscribers, "have the markets changed?"

    Our answer... was no.

    The markets have been unchanged for hundreds of years, and there is no reason to believe they will not continue unchanged.

    Prices must either go up, down or sideways. One of these three outcomes will occur. Change is inevitable and has been the one thing that can be counted on in the markets throughout history.

    No advances in technology, no leaps of modern science, no radical shifts in how we see the markets will ever alter this fact.

    Thus a market timer does not need to predict the future, or even attempt to predict it. A timer only needs to know the rules of the game and abide by them. If the market goes up, be long. If the market goes down, be short or in cash.

    Strategy Based On Change

    Trend following, the basis of our timing strategies here at FibTimer, cannot fail over any fair time frame. Why? Because trend following uses the one thing guaranteed to occur in the markets to make its trading decisions... Change.

    Trend followers are always poised to jump on board the next unexpected major move in the markets, and to profit from it.

    A great trend following system adapts to and uses change. The future is its most important ally.

    A good trend following strategy lets profitable positions continue, while quickly exiting positions that go against you.

    Systematic Trading

    However there is one way a trend following strategy can fail.

    A timing strategy that is not applied systematically, with discipline, in both good and bad times, is not a strategy.

    A strategy that is exited during unprofitable or emotional times, will not work over time, because you cannot know when the next profitable market move will begin.

    Starting a timing strategy based on a solid track record of previous profitable results, such as those at Fibtimer, is fine. But if you cannot stick to the plan, the results we achieve over the years will not be the results achieved by you.

    Our trend following trading strategies are based on the only constant the financial markets offer us. They are based on change. We make our profits when the markets change.

    When the markets are tough, you need only to execute the timing strategy. Having the strategy gives us the ability to avoid making difficult decisions under pressure when we are most likely to make mistakes.

    By trading trends we never miss a major trend. We only need to have faith in the system, and trade it. When the inevitable next big move occurs, we are thus guaranteed to be profiting from it.

    Conclusion

    Change is inevitable, and is the only market forecast we can count on. Trading trends profits from the big moves we know are in the future.

    But trading trends requires that we make the trades, in good times and bad. We will never know ahead of time which buy or sell signal is the one that makes the big profits.

    Lastly, a trend following timing strategy seldom enters or exits at the most favorable price in a market trend.

    Instead, a strategy based on change seeks to close out losing positions quickly to preserve capital, and to hold profitable positions for as long as the market trend continues to exist.

    The change and volatility implicit in the markets work to your advantage. You won't make money without them.

    Don't get caught up in the whys of the market.

    Markets stay the same because they will always change. But as a trend follower, you don't care, and you always know how to react to change.

    May 10 10:56 AM | 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.