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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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  • Immediate Profits Vs. Delayed Rewards

    Trading, just because we are itching to do something, can be dangerous to our financial health. Very dangerous.

    Our eyes should be focused on the future, and that is what market timing is all about. Following a strategy that beats the market "over time," and protects capital during bad times.

    In this commentary we look at the psychology of trading. The need for immediate rewards and the inability of so many to recognize the value of delayed rewards and follow a plan to achieve them.

    Why do so many investors and traders fail to achieve profits? One of the reasons is below.

    The Need For Immediate Winning Trades

    The term "impulsive" is often used to describe people who "can't wait. They can't delay; they've got to have it now." So they are willing to forgo something better that comes later in order to get something right away.

    This is not a trait you want to have as a market timer.

    If someone offered you a choice between a smaller amount of money ($300) available immediately and a larger amount ($1,000) that could be received after a specified delay (3 years), which would you take?

    You would be surprised at how many would take the $300. In fact, a great deal of the buying and selling going on in the stock market every day is by those who are looking for that quick $300. Very few are thinking about the $1,000 and even fewer have a strategy to achieve it.

    Why is it people engage in behaviors, the long-term consequence of which is worse for them? Why do you have that incredible chocolate cake right "now" when you're trying to lose weight, or trying to stay healthy, or trying to stay fit?

    One of the reasons is that being healthy or being fit is a "delayed reward." It occurs later.

    While the desire to succeed in market timing is perfectly fine, the desire for immediate profits and winning trades is not. It clouds the real goal. Making large profits over time. A goal few investors ever achieve.

    Motivated By Immediate Rewards

    The market is unlikely to hand "immediate awards" to you. Although market timing is all about being profitable, it is not about satisfying our emotional needs. Rather, it is the following of a rational plan to create wealth over time.

    A winning market timer must tirelessly execute a trading strategy that will often come into conflict with the timer's emotions.

    The outcome of any one buy or sell may not produce a profit. It's quite possible that the overall outcome of a series of buys or sells may not produce a profit. It is essential that these possibilities be acknowledged.

    People are motivated by rewards and in modern society that usually means money. The more money we are offered, the harder we work.

    Perhaps you were attracted to market timing because of the large potential profits you would make in the future. It's natural to want to receive a reward for your hard work. But if you expect an immediate reward for your effort and it isn't forthcoming, you'll be frustrated and disappointed. And when it comes to market timing, immediate rewards aren't always there.

    For example, everyone expects to get paid on the date their paycheck is due, but have you observed what happens when a paycheck is late? Everyone is quite frustrated and some people can get very angry. People were expecting a hard earned reward but received no reward.

    Unless one has the right perspective, market timing can feel that way also. One may put in an enormous effort and receive no "immediate" reward for it.

    If one is "expecting" an immediate reward, it can be frustrating and disappointing when it does not appear. That is why it is important to take the proper perspective with market timing, and the proper perspective can only be based by looking at timing results over a long time frame.

    The Big Picture And Laws Of Probability

    It is essential for a market timer to think in terms of the big picture, and in terms of probabilities. You must realize that the outcome of any one buy or sell signal is not significant. It's the outcome over time that matters.

    The more trades you make with a winning trading strategy, the more the law of averages will work in your favor, and across the series of trades, you'll be profitable.

    Market conditions, as we all know, are not always conducive to our plans. This is a reality of market timing and it's necessary to prepare for it. If you are aware of this, you'll be less likely to react emotionally to losing trades, and also less likely to make bad decisions when they occur.

    Seeing the big picture, and sticking to the trading plan, are the keys to timing success.

    Conclusion

    If you anticipate that you won't win on a single buy or sell signal, you will not feel disappointed when it happens.

    If you acknowledge that you may not profit even after a series of buy or sell signals, you will similarly be able to deal with it, bounce back, and be ready to take the next trade.

    But on the other hand, if you aren't prepared for these possibilities, you'll feel frustrated and disappointed. You may feel like giving up on timing.

    Some market timers hit the jackpot and start right at the beginning of a profitable trend.

    But typically, we start our market timing during difficult market conditions.

    The right perspective goes a long way in coping with the inevitable hard balls that the market throws at us.

    Those who stay the course reap the rewards over time.

    May 29 1:06 PM | Link | Comment!
  • Want High Performance In Bull Markets Plus Safety In Bear Markets? Sector Fund Timing May Be Just For You.

    While aggressive timing strategies can achieve large profits over time, not every trader is emotionally able to handle them.

    The good news is, you don't have to be an aggressive market timer to achieve large profits. Trading sector funds with a solid timing strategy is not only profitable, but drawdowns are usually very small because sector timing strategies are very diversified.

    Trading the sectors deserves your consideration.

    Trading The Sectors

    How does a mutual fund market timer take advantage of stock market volatility, while protecting himself or herself from the very real risks such volatility creates, as well as from the potential drawdowns that can occur?

    The answer is by trading specific industry sector funds. Here is a "quick" list of reasons why:

    1. Diversification: By having small positions in multiple industries, you reduce exposure to any single industry being affected by a negative news event.

    2. Volatility: While individual sectors are no less volatile than the rest of the market, they do not move together. So the volatility to one's portfolio is considerably reduced.

    3. Drawdowns: Because sector funds go to cash during sell signals, and because there are always some funds in bull markets at the same time there are others in bear markets (during which those sectors are protected in money market funds), drawdowns are kept to extreme minimums.

    4. Good in All Markets: There are always single industries in their own bull markets. Even during a cyclical bear market, such as we experienced during 2000-2002 as well as 2007-2008, there were always some industries moving higher. And if not, you are still protected by being in money market funds.

    5. Active Timing: Though sector timing is not aggressive, it is certainly active. You will always be trading the bullish sectors, and exiting the under performing ones. In some respects, it is the equivalent of running your own well managed mutual fund.

    6. Trends: Industry sectors tend to trend. And when they trend, they often move further (in either direction) than anyone expects. During a strong bull run, it is common to find individual sectors that double the gains of the overall market.

    Winning The Battle

    The Fibtimer Sector Timer strategy covers 16 industry specific sector funds found in the Rydex Fund Family. Several other widely used fund families also have sector funds, including Pro Funds and Fidelity Funds, that can be used with our sector timing signals.

    Even in volatile market conditions during which the overall stock market is performs poorly, the Fibtimer Sector Timer has performed exceptionally well.

    Sector timing is proactive money management at its best. Constantly putting your money in the strongest sectors while removing it from the weakest sectors.

    This is where the diversity inherent in sector timing stands out. Top performing sectors are where your timing funds are allocated, and no one sector can cause irretrievable damage to the portfolio should that industry collapse without warning.

    Conclusion

    Over the years, sector fund timing may go down as one of the best strategies ever created. Its ability to move funds into only those industry sectors which are performing well keeps it profitable in most market conditions.

    The low drawdowns, low volatility and diversification inherent in sector timing, not to mention strong profitability, cause this strategy to stand out from all the others.

    In volatile market conditions sector timing can create profits when other traders are lucky just to be holding onto their capital, while drawdowns, if they occur at all, become almost a non-event.

    While sector timing may not make huge gains during bear markets, being mostly in cash, the strategy will protect your investment capital. And it will then outperform during bull markets, always keeping you invested in those industries that are in their own bull markets.

    Caveat.. sector timing does require active participation. The Fibtimer Sector Timer requires that subscribers check the online report each evening or at least check their email for our Evening Update Report for any changes (the Sector Timer is updated daily).

    Sector timing also requires a minimum account size. Remember, there "could" be as many as 16 open positions at any one time, and closed (bearish) positions should be in cash (money market funds) with those funds remaining untouched. A good guess is that a sector timing portfolio should be at least $25,000 to start.

    May 22 5:04 PM | Link | Comment!
  • Discipline Equals Profits For Market Timers

    The winning market timer is the disciplined market timer. That very simply means he or she chooses a specific, dependable, market timing strategy and follows it.

    How Easily Discipline Can Fail

    The volatile market swings we are now experiencing are a perfect example. While certainly not typical, these huge up and down days can cause new market timers to freeze up and not follow important buy or sell signals.

    It is hard to BUY on a day when the market is down. It is hard to SELL into a rally. But unless we want to be one of the losing masses, we must execute the trades.

    Yes, current volatility is high, but experienced market timers know that such times usually occur right before a new (and often hugely profitable) trend starts.

    The point is... following your emotions will cost you money. Following one or more of Fibtimer's timing strategies will make you money, and importantly, will not allow you to take large losses in capital.

    What Better Reason?

    People differ greatly in terms of their ability to maintain self control and discipline. Those differences are why we write this weekly report; to drive home the fact that without following a timing strategy, most market timersand traders will be doomed to failure.

    Some market timers have no trouble whatsoever sticking to a plan. But others, when it is decision time, will find a reason "not" to take the trade. After some time passes, and they realize they have missed a profitable trade, they take the trade but enter at a price that is much higher or lower than was available had they followed the plan.

    They may or may not make a profit, but the odds have certainly turned against them.

    And what happens if the trading plan then calls for a reversal? A reversal that would have been profitable had they taken the initial trade?

    You know the answer. What better reason could there be to... again... NOT take the trade. This is when hope enters the picture, and hope is usually the second to last emotion felt before fear, which is followed quickly by losses.

    Develop Trust

    Let's consider a few ways that self-control and discipline can be maintained when making trading decisions.

    First, you must develop trust in your timing strategy. You should should know exactly what you are going to do when a signal tells you to enter a trade, and what you are going to do when a signal tells you to exit.

    One way to develop trust is to study the "Trade History" pages on our website for each strategy. A link to the complete real-time trade history for each strategy is on every FibTimer report. You will see that there are losing trades, but these are kept very small. You will also see the large winning trades which make the strategies successful over time. By looking at the trading histories, you will develop trust for the strategy you plan on following.

    Be prepared, and be willing, to make the trades when the signals are issued!

    At Fibtimer, we provide the buy and sell signals. We will make sure you know what to do well before the trade needs to be executed. We will also explain why the trade needs to made, and often the previous several weekly reports will have discussed the probability of an imminent change.

    Some traders make the mistake of assuming they can just "wing it" when the buy or sell signal comes. But this approach presents an excellent opportunity for the collapse of discipline. It often leads to "waiting" to see if the trade is successful before taking it.

    The problems with this logic are obvious, but they are not as obvious when it is time to make the trade and you are looking for a reason to delay making the decision.

    Develop Confidence

    Perhaps one of the best ways to maintain self-control, is to feel "confident" as you execute the buy and sell signals that we issue. You "know" that over time they will be successful. You "know" that during sideways markets the signals will exercise good money management techniques and keep any losing trades very small.

    It's healthy to be skeptical, but if it interferes with your ability to follow the trading plan, skepticism will cost you money. You must execute the buys and sells with unwavering confidence. You can't second-guess. You must follow the trading plan with absolute assurance that over time you will succeed.

    How do we post the excellent trading results that have been attained in our various timing strategies? Because the reports follow a disciplined plan. They follow the buy and sell signals without question. No if's, and's or but's. Accordingly, over time, they show the profitable results of sticking to the plan.

    Over time, disciplined trading becomes easier. But be careful not to minimize the importance of self-control and discipline. The more disciplined you can be, the more profits you will realize.

    May 15 5:04 PM | Link | Comment!
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