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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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  • Controlling Impulses; Key To Market Timing Profitability

    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.

    Jan 02 2:02 PM | Link | Comment!
  • 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!
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