Market Timing Discipline,
Not As Easy As You Thought
Market timing discipline means controlling impulses and
controlling emotions. When emotions rule our trading, loses
are usually the result.
This is why successful market timers follow a thoroughly
tested timing strategy. One that has been used in all kinds
of markets, including bull, bear and sideways markets.
As many novice market timers can tell you, however, maintaining discipline
is often easier said than done.
Usually the first problem arises when the markets are
between market trends. Possibly you had a nice profit during
a rally, but now the market is trading sideways and has
generated a small loss on a false signal. There is no trend,
or one is certainly not obvious.
You were strong the first couple of signals, making all
the trades, but after this loss you are starting to second
guess the timing strategy.
Just as the vast majority of market participants are driven by fear and greed,
many new market timers find it difficult to avoid succumbing to self-doubt
Market timing is challenging in that we often take positions "against" the
prevailing sentiment of most traders. It also has times when false signals
are generated. But a good strategy does not stick with the false signal. it
changes and protects capital from large losses.
Losses are part of trading with "all" successful strategies.
Small losses are acceptable. Large ones are not.
I was asked to look at another timing service that has
never had a loss since 2001. Some of the yearly gains were
over 400%. I looked and I did not believe it. Creating
the perfect strategy by backtesting is not difficult, but
in real-time the strategy can be a disaster. Remember that
some services are like used car salesmen. The 10 year old
car being sold for double its value sounds great while
the salesman is touting its pluses. But watch out when
you try to drive it on a road.
And remember this, sideways markets are almost always
either a base, or a top, and are followed by the next profitable
trend. If you do not take all the trades, how will be sure
to take the one that generates all the profits?
Invariably, the trade you skip, is the big profit maker.
The one that starts the next huge trend. And there is "always" a
next trend. In fact, 200 years of trading history shows
the markets are in a trend 80% of the time. That 20% in
between can be rough, but soon the next trend will begin
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Discipline is key. It is vital to take whatever steps
are necessary to maintain discipline and take every trade.
Markets Are Unpredictable In
Short Time Frames
The markets are chaotic and unpredictable in short time frames. The current
volatility being a perfect example. When faced with an uncertain set of circumstances,
it is easy to see why market timers may, at times, feel unsure and unsettled.
Timers follow strategies that provide entry and exit signals based on timing
strategies designed to be profitable over time. Strategies that are also designed
to protect their capital during the inevitable sideways markets.
structure you have to follow, the less uncertain
and unorganized you'll feel. You will know what
to do and when to do it."
But no timer can know with certainty how any "one" buy
or sell decision will play out. Some market timers thrive
on the excitement, but many find it disconcerting.
The best way to combat feelings of uncertainty is by following a trading plan.
If one trades with a detailed trading plan, such as the strategies offered
at FibTimer.com, he or she will impose structure onto an unstructured reality.
The more structure you have to follow, the less uncertain
and unorganized you'll feel. You will know what to do and
when to do it.
The markets may seem at times like a mass of confusion, but you can address
it by following a strategy that actually uses the volatility of the markets
to generate timing signals.
Optimistic Yet Realistic
One's mood and attitude is another factor that impacts the ability to maintain
discipline. An optimistic yet realistic attitude is vital to maintain market
Market timing often places you at odds with the current market sentiment. It
is understandably hard to feel optimistic when your position is at odds with
Many market timers struggle with trying to maintain a positive or at least
It takes practice.
Emotions And Decision Making
Maintaining discipline is vital for market timing success. It can be extremely
difficult at times, especially in sideways (non-trending) markets like in the
last half of 2011.
The best way to be disciplined is to stick to your timing strategy and keep
your emotions and impulses under control.
Take a look at the trading history of the strategy you are following. Every
timing strategy at FibTimer has a "Trading History" link. You will see times
when it generated losses. On paper they seem insignificant. But when they occurred,
subscribers had difficulty making the trades.
Note that the trading histories
posted are real-time. They are not backtested. Fibtimer
has been in business through two bear markets (since
the mid-90s) and has no backtested results posted.
Now look at the results of the trading strategy after a year. Two years. Three
years. Those small losses did not stop the strategies from being very profitable.
This important fact will help you to stay the course and make all of the trades.
Only by maintaining discipline can you realize long term success timing the
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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.