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Profit Targets... Important? Or A
Really Bad Idea.
Predictable vs. Unpredictable?
Many traders and investors set goals. Typically, a goal might be to achieve a 15% gain every year.
Although it is pretty obvious that the markets
cannot be depended upon for a "steady" rate of return, the question is, is it even a good idea to set such goals?
Would you rather have a steady return of +15%, +15%, +15% over the next three years? Or an unpredictable rate of return with potential drawdowns, say,
-5%, +50%, +20%.
Assuming the goal of 15% is set for the next three years and you have an investment of $1000 to start, +15%, +15%, +15% means in three years your
investment would be worth $1520.
But what about the unpredictable returns? -5%, +50%, +20% over three years will increase your original investment to $1710, even though you spent the entire first year
losing money.
Catch A Trend, Let It Ride!
Market timers using trend following strategies such as those at FibTimer.com have no desire to try and reach, or to force results to meet, a preconceived profit target.
If we set a profit target of 15% and exited one of the incredibly profitable short trades in 2000-2002, or one of the highly profitable bullish trades in 2003,
we would have greatly reduced our realized gains. Why exit a trend at 15%, and then sit on the sidelines watch the market go up another 60%, or 100%.
In fact, we have no profit targets. Our goal is to catch every tradeable trend, and when we do, to let it run as far as we can before exiting that trade.
That means when there are no trends, we will have no gains or possibly small losses. But it also means that when the market does trend, and history shows that
markets are in trends 80% of the time or better, that we will let our profits ride and take every bit of the gains.
Trading Every Trend
One issue faced here at FibTimer, and we expect faced at all timing services, is the pressure felt by nervous subscribers. Believe us when we say it
is an issue. We read and reply to all emails.
But here is our answer to nervous subscribers. If we reduce risk as well as reduce volatility in our strategies, in order to minimize drawdowns (during those times when they occur),
we also lower returns over time!
There is no way to trade all trends without taking the risk that the current trend might be a false one. Risk management used at FibTimer limits losses and
protects capital, but at times, losses are inevitable.
By trading every trend, we are guaranteed that we will be on board of every money making rally, and every money making decline (short trades), that the future brings us.
But you must be around for the money making trend, and you must have taken the trade to realize the profits when we get them.
Lessons Of History
Remember the crushing losses of 2000-2002. The Nasdaq dropped 80% and the S&P 500 lost 50%. It would take the Nasdaq 2.25 years of 100% yearly gains (from the lows) to again reach its old highs. Or to be more realistic, it would take over 6 years of 30% yearly gains to again reach its old highs. No losses allowed!
What do you think the chances are of this happening?
But our aggressive strategies tagged 100% gains during those years. Then followed with strong gains in 2003 when the bull roared. We have little concern about
a year of sideways and whipsaw markets. Remember... we are far and away ahead of most other traders and timers and have exceedingly strong profits over the past four years.
It is important that you approach timing with this in mind. If you give it a month and then quit because you have no gains, you are only fooling
yourself. We will continue to make the profits over the years. Because we trade "all" trends we "know" future profits will be realized. Years of experience
and hundreds of years of market history are behind us.
Stay patient, follow the buy and sell signals, and the profits from the next big trend are yours. We do not know when the next trend will start. We do not know if it
will be to the upside or to the downside. Though we do try to look into the future in our weekly analysis sections, no matter what, we trade the trends. That is the
key to success.
Recent articles from the FibTimer.com market timing services;
Emotions And Market Timing
Going For The Home Run!
Successful Timing DEPENDS On Change
Discretionary vs. Mechanical Market Timing
Following The Trend
Do You Have What It Takes?
For prior commentaries still posted on the website, Click
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All Rights Reserved.
FibTimer reports may not be redistributed without
permission.
Disclaimer: The financial markets are risky. Investing is
risky. Past performance does not guarantee future performance.
The foregoing has been prepared solely for informational
purposes and is not a solicitation, or an offer to buy or
sell any security. Opinions are based on historical research
and data believed reliable, but there is no guarantee that
future results will be profitable. |
