Market Timing Facts
Market Timing Fiction
The phrase "market timing" has been terribly misused, and misunderstood,
by market commentators, analysts, traders and investors.
A stock, ETF, mutual fund, commodity, is purchased with the expectation
it will be worth more over "time." It is sold when the expectation is
that its value will decrease over "time." Any analysis intended to create
a profitable return on investing, is a form of market timing.
The fact is, no one buys a stock expecting it will be worth less over
time. They choose a time to buy it, based on fundamental or technical
analysis, and expect that over time it will be worth more.
Market timers usually use index mutual funds and more recently ETFs covering
one or more of many possible markets. They can time the S&P 500, the
Nasdaq 100, Gold, small caps, bonds, U.S. dollar, etc.
Timers purchase the index fund with the expectation that it will increase
in value. They sell the index fund when they expect it will decrease in
Just about everyone trading the financial markets is, in one way or another,
a market timer.
If you think of market timers as crystal ball watchers, well...there
are some out there who believe they can forecast the future. But we do
We use technical analysis to identify and follow market trends and we
do so quite successfully.
At Fibtimer, we specialize in trading index funds, as well as sector
funds, exchange traded funds, and even selected stocks which tend to trend
well and work profitably with our timing strategies.
Tell Us Another Story
We believe that some of the worst advice, which is given to the vast
majority of investors, is to select an index fund, set up an automatic
deposit program to make monthly deposits into it, and then do nothing
until you retire. At that time, so the logic goes, you will be rich from
the huge profits derived from your investments.
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Buy-and-hold say the experts.
Buy-and-hold say the advisors who profit from your investment purchases
Buy-and-hold say most mutual fund companies who profit from load fees
so numerous in variety it would take too much space to list them all
Buy-and-hold say TV commentators and newsletter publishers who's clients
already own the stock.
Imagine for a moment an investor, following such a buy-and-hold strategy,
who planned to retire in 2002 or say 2008.
Depending on the index fund, the value of his or her retirement funds
would be worth 50% to 80% less after the 2000-2002 bear market.
And if they did manage to recoup some of those losses, what happened
in 2008-2009 when the stock market again lost 50%?
|"...the markets will
always go up and down, and the majority of stocks in the market
will follow the current trend. Change is inevitable! "
But those mutual fund traders who spent a little time watching the
markets, who used even a simple 200 day moving average to determine
that their fund investments were no longer performing well and exited
to cash, avoided most of the losses and made money in money market
Market timing doesn't work? Sure, tell us another story.
Change Is Inevitable
Market timing is based on the fact that 80% of stocks will follow
the direction of the broad market. It is based on the fact that the
markets trend over time, and have been doing so since the beginning
of freely traded markets.
It is based on the fact that change in the financial markets is
the one thing we can count on to always happen.
Simply said, the markets will always go up and down, and the majority
of stocks in the market will follow the current trend. Change is
And here is the key.
While over the short term, financial markets can seem
very chaotic. Going up one day and down the next, seemingly
with no rhyme or reason. Over time, they trend in huge
up and down moves, easily seen on historical charts. And
those long term moves can be traded profitably. Trend timers
(trend traders) have been doing it for years. Quietly making
huge sums of money while most investors, following the
emotional dictates of fear and greed, lose.
Either Take Action, Or Go Along
For The Ride
The best tools for making entry and exit decisions, in
order to profit during upward trends and safeguard capital
during downward trends, are technical analysis tools. Fundamental
analysis does not take into account whether a stock is
in a down trend or up trend. It is of little use to market
timers. What counts is price. Is price rising or falling?
Is it trending? Technical analysis can give us the answer.
As mentioned above, a simple 200 day moving average would
have kept mutual fund investors (and most individual stock
investors) from losing their shirts in the 2000-2002 bear
market. It also would have saved them from losses during
the 2008-2009 bear market. Moving averages are very simple
technical analysis tools.
use a methodology that takes you out of declining
markets, or you tank right along with the declining
markets (along with all the other buy-and-hold
Obviously there are better tools than the 200 day moving
average. Not everyone wants to wait until a mutual fund
has dropped below its 200 day average. Much depends on
a traders time frame. Are they aggressive, conservative,
or active? Their emotional ability to handle losses is
also a factor.
Gains can also be enhanced by aggressive traders who are
willing to use bear funds during declines. In the case
of the 2000-2002 bear market, our aggressive strategies
that use bear funds beat the market by over 100%. In the
2008-2009 bear market, our aggressive strategies beat the
market by 59%. Even our conservative strategies were safe
in money market funds.
But regardless of a traders choice of funds, whether or
not they are aggressive, conservative, or just don't want
to lose their shirts when the markets tank, market timing
is the only answer.
You either use a methodology that takes you out of declining
markets, or you tank right along with the declining markets
(along with all the other buy-and-hold investors).
There is little choice. Either take action or go along
for the ride.
We are market timers here at Fibtimer and have been for
a very long time. We have realized the profits, and have
also been through the ups and downs of many market cycles;
bull, bear and sideways.
Exceptional results are made by following solid, tested,
non-discretionary timing strategies for long periods of
time. Poor results are the consolidation prize for those
who follow conventional wisdom, park their brains on hold
for decades, and let the markets decide whether they retire
rich, or unfortunately, poor.
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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.