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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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  • Enhance Gains With Timing Diversification

    As we have written so many times, "market timing is the following of a long term strategy to profit from the financial markets, that also protects us from the inevitable down trends that occur along the way."

    Many investors, who understand the potential of market timing, pay little attention to the potential of diversification. Many novice market timers jump right into an aggressive timing strategy with little thought about how they will handle a period of losing buy and sell signals.

    But there is a way to jump right in, and also realize the long-term potential of even the most aggressive strategies. It does require a bit more work, but not all that much. Just a few minutes a day to check for changes and make adjustments.

    Aggressive Market Timers Can Benefit

    Many market timers already follow well-defined investment plans that include diversification. But as we just discussed above, some do not.

    If you are one of those who do not... consider changing. Diversification is not only for those who are afraid of volatility. It has an important place in even the most aggressive of portfolios.

    We have been market timing since the early 1980s and although we are quite aggressive, we diversify our timing funds, not just for safety, but also to "enhance" our profit potential.

    Those who follow our Bull & Bear Pro Timer strategy will make a great deal of profit over long time frames. Because the markets tend to trend most of the time and the aggressive strategies will catch all trends in "both" directions.

    But non-trending markets can be quite frustrating, and aggressive market timers in our experience, become frustrated more quickly than most.

    Aggressive timers.... try this strategy: Use the Bull & Bear Pro Timer strategy for 20% and no more than 30% of your timing portfolio. Use the Sector Fund Strategy for the other 70% to 80%. Or our Diversified Portfolio (discussed below).

    Although the sector funds go to cash on sell signals, these industry specific funds are big winners when they trend. Often they will trend much further, by 100% to 200%, than the rest of the market.

    When the bear growls, you will make money, but have only a small percentage of your timing portfolio at risk.

    During a bull market, you will be fully invested most of the time, except in those few industry sectors that are not doing well.

    Plus, we have a Diversified Portfolio available that has posted excellent profits for many years. You can also consider this strategy and not even worry about which sectors to select. We have done the work for you!

    Diversified portfolios have a dramatic effect in controlling volatility and drawdowns. Yet they can be extremely profitable over time. The best of all worlds.

    Conclusion

    Consider at least some diversification for your market timing funds.

    Diversification can dramatically help control volatility and drawdowns.

    Diversification, when properly applied to your portfolio, will actually enhance your profit potential over time.

    Sep 12 10:20 PM | Link | Comment!
  • Ignorance, Greed, Fear And Hope, The Deadly Enemies Of Profitable Trading

    In the book "Reminiscences of a Stock Operator," Edwin Lefevre writes:

    "The speculator's deadly enemies are: Ignorance, Greed, Fear and Hope."

    In today's commentary we will take a look at "Hope" and see why it is one of the four deadly enemies of successful market timing.

    Each of us has a desire for success. That is why we use market timing in our investing. Not only to increase our gains in both bull and bear markets, but importantly to protect our capital against loss.

    But that same desire for success can stand in the way of our ability to recognize reality, even if it is right before our eyes. 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 may 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 effectively market time the markets.

    Hope vs. A Plan

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

    Trading cannot be successful without a plan. Trading by emotions, by news events, or out of fear, is not very different than gambling. Successful market timers win because they follow a plan. Unemotional and with clear buy and sell signals.

    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. 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? Nope, not if you cannot accept a loss. Then hope springs eternal (excuse the pun). Winning traders have their share of losses. But they keep the amount of those losses small. They follow their plan and "never" hold onto a position "hoping" it will turn into a winner.

    Hope vs. Gambling

    When we go to Las Vegas, we know that the odds are stacked in favor of the house. But we gamble anyway in "hopes" 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. It separates us from the urges that turn winning trades into losing ones.

    But once we start hoping, we lose that edge. We become just like the gamblers in Vegas.

    And in Vegas, the house always wins over time.

    Hope vs. 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. Neither hope nor ego has any place in making trading decisions.

    Conclusion

    When you trade with a plan, it is in black and white. It has no emotions attached to it and thus the signals are not swayed by emotions. A plan does not rely on hope. A plan has no ego. A plan gives us, as market timers, an edge over the market.

    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.

    Sep 05 3:10 PM | Link | Comment!
  • Focus On The War, Not The Battle

    Why do most traders lose most of the time?

    Why is it so many investors will stay with a position as it loses, hoping it will bounce back, instead of cutting their losses? And why do those same investors, when they have a winning position, take quick profits instead of letting the trend play out?

    It is all about emotions. Not wanting to lose. Wanting to feel good about a profitable position. But unable to make consistent profits.

    It's Not The Battle, It's The War

    Too many market timers believe their last trade is a reflection of just how good a timer they are (or how good their timing service is).

    This boils down to one word - expectation.

    If you expect to win all the time, or even the large majority of the time, you're setting yourself up for a lot of heartache.

    And the sad fact is, if you believe market timing is about winning all the time, you are also setting yourself up to be one of those many thousands of losing investors.

    To win as a market timer, you must focus on the war - not the battle.

    The fact of the matter is, this is to a large degree a game of odds, and should be played over a long period of time. Those market timers who recognize this fact, and do not pull out during a losing position will be the winners in the end.

    Market timing is about beating the markets, and all those "other" thousands of losing investors, over time. It is about following a timing strategy through thick and thin, and profiting over time.

    We write about this frequently because we are just as human as our subscribers. We know the emotions. We know the pressures. If we can make all of our subscribers recognize that sticking to the strategy over time is the key to success, we will have accomplished a great deal.

    The FibTimer historical trade pages (available by link from all subscriber reports) show the excellent profits we have made over the years. They also show small losing trades. It is to be expected in market timing and in fact in all trading. Be prepared for them so that they are not unexpected, and over time you will be successful.

    The "Worry" Factor

    All humans worry. If we didn't worry, we might take dangerous risks, and pay a steep price.

    Worrying is normal in our lives, and has an important function.

    However, worrying becomes a problem when you do it too often and for no good reason. For example, if your last timing trade was a loss, and you worry about it, you tend to think the same thoughts over and over again. It doesn't help much and you are likely to let it interfere with your ability to execute the next timing signal.

    Excessive worrying "can" be a problem for successful market timing.

    If you are the kind of person who worries all the time, it may interfere with your ability to pay attention to executing your market timing strategy.

    The solution? Think "long term." Remember, it is the "war" you are trying to win, not the current battle.

    The Difference Between Winning Timers And Losing Timers?

    LOSING market timers have unrealistic expectations about the kind of profits they can make, typically shooting too high.

    Losing market timers also debate with themselves before executing buy and sell decisions, and even dwell on a position long after it's closed out.

    Losing market timers pay little attention to money management, tending to enter and exit trades emotionally.

    And critically, losing market timers have no clear plan how, or when, to exit.

    WINNING market timers follow a strategy that uses strict money and risk management rules which keep them in a winning position as long as possible, and protect them against large losses.

    Winning market timers obey their chosen timing strategy faithfully, knowing it will not be profitable all the time, but that over time it will beat the market, and it will never allow them to lose substantial capital in a bear market.

    Winning timers take action instead of suffering "analysis paralysis."

    Winning market timers never allow emotions to take over, or have any part in, their timing decisions.

    Hopefully this second description fits you better, but if the first one seems a little too familiar, you now at least know how to start getting past that barrier

    Why Do We Focus On Emotions?

    We have been asked many times why we focus so much on emotions in our weekly commentaries.

    Allowing emotions to affect trading decisions is the number one reason why most investors lose money in the financial markets. Allowing emotions to affect timing decisions is also the number one reason why market timers fail.

    When emotions enter the picture, timers jump the gun on buy and sell signals. They exit positions before the strategy tells them to. Emotions cause them to abandon a perfectly good timing strategy and, almost always, it happens at a time when they wind up losing money.

    Why? Emotions run highest when you are in a losing position. But losing positions are an absolute certainty! So be prepared for them, or be prepared to make bad decisions, and lose capital.

    Giving in to emotions, makes you one of the vast herd of followers, trying to out-think everyone else, but in reality you are just moving with the herd. And the herd always loses in the end.

    To be successful at market timing, and in fact to be successful at any trading, you must follow a strategy that "removes" emotion from the equation.

    This means your trading plan "must" be totally removed from any discretionary input.

    If you can change the trade, you will!

    And if you change the trades, eventually you will lose.

    Choose strategies that match your emotional trading style, whether aggressive or conservative (and hopefully a diversified mix of both) and stay with them.

    The market timer who stays the course, winds up with the gains we post on the website on our trade history pages.

    Aug 29 7:26 PM | Link | Comment!
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