What is Market Timing?
Timing is everything in today's volatile markets. However, misleading signals and ambiguous chart patterns often leave traders in a quandary over the real market direction.
"Market timing is one of the best ways to control risk."
- Market timing has shown itself to be futile in every study ever conducted. The idea of market timing and the reality are night and day. The idea is very compelling. It presupposes you can be on the sidelines when the market goes down and in when it goes up. If you could do that you'd be richer than Warren Buffett. The reality is it leaves most people in the market when it's going down and not in when it's going up.
- Many argue that using any market-timing tool is a waste of time.
- Forecasting asset prices is a problem that has fascinated investors since the very advent of financial markets. Accurate predictions of the stock market movements imply fast and substantial capital gains. Attempts to forecast stock prices are numerous.
- The principle objective of market timing is to provide investors with the opportunity to avoid major market price declines. Obviously, if investors can avoid weak periods in the market and participate in the strong, they can also experience superior returns over a buy-and-hold trading strategy. What is surprising is that studies show that investors can still outperform a buy-and-hold trading strategy, even if they don't participate in the strongest times - as long as they escape major market declines.