Easier Said Than Done
The winning market timer is the disciplined market timer.
Sounds simple. And everyone should find this sentence easy to agree with.
Basically, it just means following a specific trading strategy and not deviating
from it. But people differ in terms of their ability to maintain self-control
How are you handling the current volatility? Are you agonizing
over sell offs and feeling great when the market rises?
There is nothing wrong with these emotions, unless you
act on them. That is the reason why non-discretionary timing
strategies work. If you follow them, no emotion is involved
and you are relieved of having to make emotional decisions.
You just follow the trading plan.
Discipline vs. Emotions
It is easy to maintain discipline with a market timing strategy when that strategy
is having a profitable run. But all strategies have times when they are not
profitable. This is a fact of trading the markets and accepted by profitable
market timers as the price of doing business.
However, when a strategy is going through an unprofitable period, maintaining
discipline is something else again. A trader, seeing losses in his portfolio,
tries to find a reason why exiting the strategy is a good idea. Anything to
take away the pain.
The problem is, exiting a proven strategy is almost always
going to cause much "more" pain.
is an emotional decision and the stock market runs
Exiting is an emotional decision and the stock market runs on emotions. But that
just puts you in with the crowd. Making buy and sell decisions according to how
Following the emotional crowd may take away the "pain" for a short while, but
it is NOT the way to profit.
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Felix And Oscar
As you may have casually observed, some people are very disciplined while others
Neil Simon's characters Felix Ungar and Oscar Madison illustrate the stark
contrast between the disciplined and undisciplined.
Felix was a neat freak who wanted everything in its
place, while Oscar was sloppy and more impulsive.
But there were times when Oscar was extremely disciplined. He was a well-known
sports writer and he must have shown an acceptable amount of self-control in
order to put out his column every day.
Although he was a fictional character, Oscar shows how it's possible to be
undisciplined in terms of personality traits, yet able to show discipline when
completing a specific task, such as executing a trading strategy.
Discipline Equals Profits
Keep in mind that you don't have to be disciplined all the time. You only need
to be disciplined when you are executing a buy or sell signal. It sometimes
helps to remember this fact. It eases some of the pressure to think that you
only need to be "disciplined" when you execute a timing signal, rather than
during all waking hours.
Don't minimize the importance of self-control and discipline. The more disciplined
you can trade, the more profits you will realize over time.
The urge to ignore a buy or sell signal, or even exit a
trade because it is not currently profitable, can be very
strong and often only those traders committed to following
an unemotional timing strategy will stay the course.
the big profit-making trend begins, if you do
not take the trade, you will be left by the wayside."
But when the big profit-making trend begins, if you do not take the trade, you
will be left by the wayside. Because it is impossible to know "ahead" of time
when that major trend is going to start, you must take all the trades.
Which buy or sell signal will be the one that makes a good profit? This is
the point. No one knows ahead of time so they "all" must be taken.
If the majority of stock market investors and traders had the ability to stick
with a good timing strategy, most would be rich. Because that is not the case,
we know that many market timers as well as traders fall by the wayside.
Don't be one of them
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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.