Stock Market Timing does it work-Yes it does but only if done correctly
Stock Market Timing does it work

Stock Market Timing does it work

Stock Market Timing does it work

Anything I’ve ever done that ultimately was worthwhile… initially scared me to death.
Betty Bender

Stock Market Timing works if done properly

Many individuals and experts state that market timing is impossible.  The answer to this question is yes and no. We all know there are seasons in a year and we know roughly when winter, summer, fall, and spring will begin.  No one can predict the exact time the one season will transition into the next.  The same rationale applies to market timing.

If you are trying to predict the exact market turning points, then you might get it right once or twice, but overall your record will be dismal, it is an exercise in futility for the most part and best reserved for those who seem to have a deep desire to take on large losses.

Stock Market Timing does work its like the seasons of the year

Stock Market Timing is like the seasons of the year

Everyone, in general, knows when winter, fall, spring or summer will roughly begin. However, no one can predict the exact date summer will transition into fall. The same methodology can be applied to timing the markets.  Instead of trying to identify the precise Market top or bottom, we look for signs of bottoming and topping action in the market, which would correlate to spotting changes in the weather. This data, in turn, facilitates the process of determining how close one season is from transitioning to the next. Adopting this approach makes market timing a distinct and achievable feat.

Perhaps the first thing for humans to learn would be simple money management skills. After all, you cannot run without learning to crawl and walk.

Market timing works and is better than monkey throwing darts at a board

Researchers have demonstrated that humans are no better than monkey’s when it comes to managing money  (Kahneman, Santos et al.).  

Kahneman asserts in his book, Thinking Fast & Slow that monkeys with dart board are actually better than humans trying to manage money on wall street.

 

 Interesting quotes from a Stock market Timing Book

“People who spend their time, and earn their living, studying a particular topic produce poorer predictions than dart-throwing monkeys who would have distributed their choices evenly over the options.”

“The idea that the future is unpredictable is undermined every day by the ease with which the past is explained…Our tendency to construct and believe coherent narratives of the past makes it difficult for us to accept the limits of our forecasting ability. Everything makes sense in hindsight; a fact financial pundits exploit every evening as they offer convincing accounts of the day’s events. And we cannot suppress the powerful intuition that what makes sense in hindsight today was predictable yesterday. The illusion that we understand the past fosters overconfidence in our ability to predict the future.”

For stock market timing to work, avoid the talking heads

In general, we tend to agree with what he has to say in regards to stock market timing, and it’s, for this reason, we hardly listen to the talking heads.  When one understands that the markets are nothing but a cesspool of emotions, the importance of understanding the mass mindset takes on a new meaning. The most important tool in our opinion is mass psychology as it can help one pinpoint the emotional state of the masses.  The focus should be on identifying what the masses are doing or going to do, and only then should the technical structure of the markets be examined. It is the masses that drive the markets and not the markets that drive the masses.  Understanding what the masses are doing is, therefore, imperative if one hopes to succeed in the markets. History clearly indicates that the masses are always on the wrong side of the equation as they either get in too late or overstay their welcome.

Why have so many failed when it comes to timing the  Stock markets?

Stock Market Timing work. those who fail do not understand the concept

The reason most individuals fail is that they take a backward approach to the problem.  The stock market is treated as a separate entity. They try to find out what the market is doing, and then they attempt to determine what the crowd is doing or will do. When in fact, what they should be doing is looking at the crowd and then using this information to decide how the stock market will react.

A market soars to new highs or crashes to new lows because of the way the masses are interpreting the situation.  How can you predict something if you are not looking at the source? Human beings are the most illogical of all animals. Despite having the power of reason and logic, they are the only creatures on this planet that will go out of their way to make sure they are in harm’s way.

Technical Analysis is useful in spotting Symptoms of the Disease

Technical analysis alone is not useful when it comes to stock market timing. It is useful in spotting the symptoms of the disease, but it does not identify the cause.  To determine the cause, one needs to deal with the main driving force behind the market; emotions are the main driving forces in the market.

If we had to choose between TA and Mass psychology, we would accept mass psychology. There is no standalone tool more powerful than understanding Mass behavioural patterns, at least as far as we are concerned.   But we do not have to choose as we have the option of combining the best elements of TA with Mass Psychology.

Mass Psychology the Missing Ingredient to Stock Market Timing

Understanding the Modus Operandi of the masses is key to being a successful trader, and we feel that it is probably the most important piece of knowledge when it comes to investing and trading.

To answer the question we put forward at the beginning; yes we believe that market timing does work when conducted in the proper manner.  Trying to time the exact bottom or top should be out of the equation.

Mass Psychology helps to keep you on the right side of the markets

Utilizing the most fundamental tenets of mass psychology, one could have easily sidestepped the dot.com bubble, the housing bubble, etc. At the same time, one could have jumped into the markets when everyone was panicking, examples are the crash of 1987, 2003, 2007, etc., on each of these occasions, the sentiment was either euphoric or extremely bearish. When feelings move to the extreme zones, the opportunity is usually in the air.

Would you have got out right at the top or opened positions at the absolute bottom? The answer is a resounding no. However, you would have walked away with solid profits and would have had the opportunity to purchase quality stocks at rock bottom prices.   Be wary when the crowd is ecstatic and ecstatic when the crowd panics.

Other articles of Interest 

Turkey shot down a Russian Drone  (Oct 27)

stocks and bonds will not crash in 2015  (Oct 25)

It’s not time to sell the DAX (oct 22)

The Dow is getting ready to Soar  (Oct 21)

why its time to investing in banking stocks (oct 18)

Ignore the Yield Curve- bank stocks are a bargain (Oc 16)

Dr Copper back from the dead; time to buy or blink (Oct 7)

China’s Stock Market Crash; time for panic or restraint  (Oct 2)

Gold prices set to jump in 2015? (Sept 22)

Market Selloff; is it time to panic  (Sept 12)

Forever Quantitative easing continues unabated  (Sept 10)

Currency wars detonate (Aug 27)

The Gold Bull is Dead (Aug 21)

Currency wars intensify (Aug 20)

Contrarian investing Guidelines for beginners  (August 14)

 

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