New Year's Resolutions!

Jan. 17, 2014 9:22 PM ET

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Seeking Alpha Analyst Since 2009

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, “Growth Fund Strategies Report” which used a market timing strategy consisting of changes in interest rates, Fed changes, Market breadth and market price (using the S&P 500 Index). The strategy was hugely successful and issued a major sell signal on September 10th, 1987, just five weeks before the market crash on October 19th. In 1996 his first market timing website was launched. “Market Timer Report” used a refined strategy to market time the general U.S. stock market, and followed a variety of growth stock mutual funds. It was geared towards more conservative mutual fund investors and averaged only one to two switches a year. By the end of the 1990s, the strategy was refined to one that followed market trends instead of using interest rates and breadth on which to base market timing decisions. Because trend following never missed major trends trends, and those trends which failed resulted in minimal gains or losses, it became apparent that this was the better way to profit in what was quickly becoming a hugely overbought stock market. The bear market of 2000 through 2002 generated substantial “bearish position” profits by following trends and Frank began using Fibonacci support and resistance levels to look forward and help identify trends. In 2002 we changed the name of our timing service to FibTimer.com (live link) to better identify ourselves to prospective subscribers. We also began the process of adding new timing strategies, using our trend trading systems to develop both aggressive market timing strategies as well as conservative market timing strategies. In time we added sector fund timing, gold fund timing, bond fund timing and small cap fund timing. In 2003 we expanded to ETF timing strategies as well as starting a portfolio of individual stocks. All using our trend following systems to time the markets. Frank is currently the editor and chief market analyst of FibTimer.com, as well as president of Market Timing Strategies, Inc.

Most everyone makes some sort of New Year's resolution. And, most everyone fails at following them for very long.

The problem with such resolutions is, they are made because you already have trouble sticking to them, so one more promise is not going to change things for very long.

But if this year was different, what would your resolution be?

At Fibtimer, we are biased. We want our subscribers to make money. So we will make a list of the resolutions we would like to see our subscribers keep for the year 2014!

Realistic Goals

The most important "first step" is to set realistic goals. It makes no sense to set yourself up for failure by setting a goal that it unlikely to be achieved.

Do not set a goal to reach a specific profit for the year. Those new to market timing will most likely set a profit goal of 30% to 40%. Can such profit be achieved? Of course it can, but no one knows ahead of time what kind of markets we will see in 2014, so such a resolution might very well be doomed to failure from the start

We could see a continued bull market, or even a bear market.

So here is a more realistic profit goal. One that can be followed with reasonable expectations of success.

Promise to stick to your chosen timing strategies, so that you can make as much profit as possible, given what year 2014 offers us.

This is realistic. You will make as much as you can, depending on what the markets offer us.

Sticking to the Strategy

We have said this, and written this, so many times. But it is so critical that we must again say it here.

NO ONE makes money in the markets without following a trading plan. A strategy designed to profit by using the ups and downs of the markets to determine whether you are in a bullish or bearish position.

Trading plans are what make the professionals rich. They are the difference between winning, and losing.

And if you trade a plan, you have to stick to it. The reasons you can come up with to abandon a plan cannot be counted. They are so numerous that no article could list them all. And they always feel right at the time they are made.

But there is one sign which will tell you that you are making a fatal mistake. If you are acting on emotion and making a decision other than what your followed strategy tells you to make, you are setting yourself up for disaster.

Trading plans are not just designed to keep us bullish during a bull market. That is easy. Everyone is bullish then.

Trading plans are not just designed to keep us bearish during a bear market. Again, an easy thing considering everyone will be bearish.

Trading plans are designed to keep us from making rash decisions are times when the markets are volatile, when emotions are high, when the vast majority of investors and traders are panicking and making mistakes. This is when your chosen plan will keep you safe.

So if you decide to make an emotional exit right at a crucial moment, why did you bother to use a trading plan in the first place? You will be jumping out of the frying pan and into the fire. It's up to you, but a super New Year's resolution for this year would be, "stick to the plan!"

Impulsive Trading

Another great resolution would be to avoid impulsive trading.

It is not necessary to trade all the time to be profitable. What is important is to not allow any trade to become a big loser.

This takes us right back to following the trading plan. Impulsive trading is a trait that can only be stopped if you recognize it as a problem. If you are trading when your strategy has not issued a signal, you are likely being impulsive.

Look back at all your impulsive trades of the past. How many of them turned into disasters? How many of them became big losers?

Impulsive trading puts you right in with the majority of traders, and the majority are usually wrong. They are especially wrong at times of high emotions, such as market tops, market bottoms, reactions to news events, etc.

Don't allow yourself to trade unless your trading plan tells you to. Try to relax and realize that the plan is unemotional, and allowing your emotions to rule will cost you money. The plan will not.

Winning All The Time?

This New Year recognize that losing is a part of the game? Every successful trader takes losses. If those losses cause you to jump ship, you will then be without a plan and riding the emotional roller coaster along with everyone else.

Trading plans keep losses very small. This is what is important, not the fact that you had a loss. Trading plans also keep you "in" winning trades. The urge to take a profit is another reason why market timers act impulsively. Everyone wants to profit, but giving up a big profit to lock in a small one is one of the most common reasons for failure.

Small losses and small winners do not make you successful. Small losses and big winners do. You must stay with the winning trades.

We do not exit winning trades until the trend reverses.

Pulling The Trigger

For all those subscribers who have difficulty with being impulsive, there are also those who recognize the importance of following a trading plan, but when the signal is issued, have a great deal of trouble executing it.

If the market has rallied that day, and the signal is a bearish one, they decide to wait a day and see if it is correct. Then maybe another day, and another.

Signals are often not profitable immediately. They are often made against the prevailing sentiment. Those who procrastinate will likely find themselves on the outside looking in. If they wait for the trade to be profitable, they will have lost some of the profits for themselves.

Second guessing a buy or sell signal is a sure way to miss out on profits, or increase your risk of losses.

Diversification

Spread your investments out a bit. This year the falling dollar made substantial profits while gold stock funds rose, but then sold off into the year's end. Having several timing positions that are in different sectors brings in solid gains year after year, while limiting losses to only a portion of your investments

Select several of our timing strategies. Some aggressive, and some conservative. If any one of them under performs, you will be very happy you diversified.

Using the Diversified Timing Portfolio strategy is a great way to diversify!

Conclusion and New Year's Resolution

You cannot know ahead of time what the markets are going to do. Anyone who promises you that "they know" is lying. Anyone who promises huge gains is lying. Any service that shows huge gains very year, with no losses is lying. Real-time is different than back testing. Back testing is always profitable. Real-time separates the hucksters from the professionals.

Promise yourself to stick with your selected timing strategies absolutely. Take every trade. Take those trades when they are supposed to be taken, not after the fact.

Do not place all your investments in any one strategy. Especially do not place it all in the most aggressive strategy just because that strategy has shown good previous gains. No one knows what the New Year will bring. Diversify.

Wishing each and every one of you a happy, healthy and prosperous New Year. Remember that life is short. Investing is important for your future, but it is not the end all.

Spend time with your families. Relax and smell the roses.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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