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Stock Market Trading
Stock Market Timing
Stock market timing, technical analysis and fundamental analysis, index trading,
NYSE, NASDAQ 100, DJI, S&P 500, charting, trading, SPX, NDX,
QQQ, SPY, Exchange
Traded Funds (ETFs), stock market, risk.
Market timing is a strategy, system analysis or any other
activity, the purpose of which is to specify correctly the time to buy and when
to sell. In a broader prospective, it defines the right time to trade long
(bullish trade) and the right time to trade short (bearish trade).
In the majority of cases, market timing is based on the elements of technical analysis
that use past prices, volume and other market-generated data to forecast future
price movements of stocks, indexes or any other securities. Still, many
professional portfolio managers use elements of fundamental analysis in stock
market timing and it would be wrong to say that market timing is a derivative of technical
analysis only. In most cases, even when fundamental aspects (such as asset
allocation, etc.) are the basis of a trading choice, technical analysis tools
are included in the timing model. If you look at any market timing model, the
odds are high that you may find various elements of technical analysis, starting
from simple charting and finishing with
artificial intelligence to analyze complex algorithms. Besides the fundamental
and technical approaches, you may see market timing models that use economical
and political analysis to predict and time the market. Although it may sound
strange, you may even find stock market timing models that contain astrological elements.
The main purpose of the market timing strategy or system is to beat the market's
performance. Usually the market is described by indexes. Such indexes as the
NYSE composite index (^NYA),
S&P 500 index (^SPX),
Dow Jones Industrials index (^DJI) and
NASDAQ 100 index (^NDX)
are barometers of the U.S. Stock Market. When market timing strategy is
mentioned, it is assumed that the goal is to beat the main indexes. If a timing
model cannot beat a "Buy and Hold" index trading strategy, there are no reasons
to invest in this model. It might be cheaper and more profitable to buy QQQQ,
SPY, DIA or
any other ETFs that track an index's performance and hold it.
Since indexes provide a benchmark of the market, the majority of market timing
systems include an index analysis. The index analysis could be used to select
stocks that have better than index performance or to time the index itself, etc.
Some of the most popular timing models are dedicated to time QQQQ,
SPY, DIA and other Exchange Traded Funds
that track the indexes.
Still, every active trader and investor should remember that no matter what is
used to time the market, whether it is fundamental analysis, technical analysis
or something else, none guarantee the future performance of the stock, index or
any other security. There is always a risk involved in any type of trading.
V. K.
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