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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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  • Can You Predict The Future?

    Most investors believe they can predict the future. Or at least, that someone else can. At FibTimer, we rely on the fact that most investors are convinced they can predict the future. This is where most of our profits come from. Their errors.

    In the world of investing, it is prices, not investors, that predict the future.

    Looking For The Holy Grail

    As our subscribers know, Fibtimer identifies and trades trends. We do not use hocus pocus to forecast the market's direction. We identify the trend and go with it.

    Over many years of market timing we have realized that trying to predict the future course of the financial markets is a sure path to losses. But trading trends, which is not predicting but going with the already identified direction of the markets, has produced consistent profits for as long as free markets have existed.

    But this is just too simple an answer for most investors.

    Looking for the Holy Grail, investors spend untold sums of money on analysis software, trading systems, and market gurus. All in order to predict the future.

    However there is no Holy Grail. There never has been and there never will be.

    But this doesn't mean profits, indeed huge profits, cannot be made in the markets.

    They are just not made by most investors.

    True Believers And Greater Fools

    Interestingly, Fibtimer profits because we rely on the fact that most investors and traders believe they can predict (forecast) the future.

    As these investors buy and sell, the "Greater Fool Theory" kicks in.

    Investors buy a stock with the belief someone will pay more for that stock in the future. This continues as a stock is traded up in price. As more investors buy and sell the same share for higher sums, sentiment begins to build that higher prices and profits are almost a certainty.

    As more investors believe they can buy a share and sell it at a higher price (looking for the "Greater Fool"), more and more investors (believers) jump on board. Investor psychology in its most basic form.
    Of course, someone has to wind up holding those shares with no one interested in buying them. This is when the trend changes.

    The "Greater Fools" are holding shares they cannot sell without a loss. As sentiment changes, the markets begin to drop. Eventually the new trend, to the downside this time, builds a head of steam. Investors feel they can (or must) sell shares. They will be able to buy them back at a lower price. (The Greater Fool Theory in reverse).

    Market trends are born of changes in sentiment. Fibtimer trades the trends created by the the tens of thousands of traders and investors who make them.

    Trend After Trend.

    Trend, after trend, after trend. All defined by changes in price. They are rarely forecasted, or there would not be so many investors on the wrong side of trades.

    But trend traders, who understand that investors move with a herd like mentality, can use this information to profit.

    As the herd starts moving in one direction, what changes? Price.

    Using price to determine trend, then jumping on board the trend and riding it till the end, is where true profits lie.

    Don't Let Anyone Tell You

    Do not let anyone tell you they can forecast the future direction of the markets. We will not tell you that we can do it, and we hope you will not let anyone else convince you they can.

    Obviously, if 100 market forecasters make predictions, someone will be right. But consistently being right is another story entirely.

    Following trends, determined by changes in price, is the only consistent path to solid profits. It is not right all the time. Nothing is. But trends usually move much farther than anyone ever expects, and in trading those large trends, huge profits are made.

    Nothing Has Changed

    Change is constant. Because change is constant, uncertainty is constant.

    From uncertainty, trends emerge. Sentiment changes, true believers begin to buy into the new rally, and another trend is born. Over, and over, and over. Month after month and year after year.

    The markets have come a long way in recent years, with instant quotes, trading software, a mind numbing array of technical indicators. But one thing that has not changed is investor's reactions to change. Fear and greed still hold sway.

    FibTimer exploits the reactions of investors. Those reactions are embedded in prices and lead to trends. In this respect, though trading is now done at the speed of light, nothing has changed.

    Dec 28 10:54 AM | 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.

    Dec 20 8:18 PM | Link | Comment!
  • Fear: The Enemy Of Market Timing Success

    "Fear" - is defined in the dictionary as:

    "...an unpleasant, often strong emotion caused by anticipation or awareness of danger...implies anxiety and usually the loss of courage."

    The fact is, all traders, investors, and yes market timers, feel fear at times, at some level. What is important is how we address it. Knowing the definition, and reasons for fear, can actually help market timers to overcome it.

    In the book "Trading in the Zone" by Mark Douglas, he describes how most traders (market timers) "...believe that they know what is going to happen next."

    This can cause market timers to put too much importance on the "current" trade, and to lose focus on their performance over time. Market timing is based on "probabilities" that make us successful over time. But too much focus on a single trade causes the fear levels to rise. As this occurs, market timers become hesitant and cautious, trying to avoid mistakes. The risks of choking under pressure (not making a trade) build.

    All market timers, at times, feel fear. But successful market timers manage their fear, while losing market timers are controlled by it.

    When faced with a particularly stressful decision, it is a perfectly normal human response to revert to the "fight or flight" response. Either we do battle, or flee. When a market timer feels such an emotional response, his or her decisions are very likely to be adversely affected. Fear of Loss

    The fear of loss can keep a market timer from executing a trade. Or it can keep him from exiting a trade when the trading plan calls for it. Either can be costly. No one likes to have losses, but even the very best timers do. The key is to realize that you are worrying about the results of "that" trade, and not concentrating on executing the plan, which over time will make you successful.

    Trading plans, such as the ones we use here at FibTimer, take time. No single trade makes or breaks the plan. Once you understand and accept that, it is much easier to make the trades without the "fight or flight" response hampering your ability to act.

    Fear of Missing Out on Profits

    This fear is usually felt during runaway rallies. All your friends are talking about the incredible profits they are making every day. If you really look at this in the right perspective, it is a very dangerous kind of fear. It eventually causes you to buy in, and of course, when you and thousands of others who feel the same way react at the same time, the market is finally at its top.

    Having a trading plan, and sticking to the trading plan, eliminates this fear. You "know" your plan works, so you are not susceptible to the "greed" factor that comes so easily in market rallies.

    Fear of Losing Profits

    This fear arises when you have a profit, and start worrying about losing it. If you take your profits, you will feel like a winner! But you know this story. The market will likely continue in the same direction, leaving you with an entirely new set of fears.

    Fears cloud decisions. And decisions clouded by fear, that feel right at the time they are made, are more often than not... wrong.

    Again, back to the trading plan. You know what to expect, because you have a plan that "will" succeed over time. It "will" bring in those profits. So a commitment to the "plan" relieves you of the fears of missing out on that quick profit, and the decision that invariably turns bad.

    Fear of Being Wrong

    The desire to be "right" is in direct opposition to the ability to be successful.

    The desire to be "right" is in direct opposition to the ability to make money.

    A market timer's desire to be right, to be able to tell his friends how successful he or she is, can become so powerful, that a he or she winds up second guessing, the "plan." Taking winners too quickly, or holding onto losers in the hopes that they will come back, or at least break even.

    Conclusion

    To sum it all up, "successful" market timers actually make their profits off the "fears" of the majority of investors, traders, and even other market timers.

    They do this by "sticking to a plan" and not allowing emotions (fears) to rule their decision making ability.

    FibTimer provides the plan. Based "not" on emotions, but on a sound "trading plan." Fear can be conquered when you have a plan. As time passes, confidence builds, and the plan will become easier and easier to follow. Stick with the plan.

    Dec 14 10:37 AM | Link | Comment!
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