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Simple Market Timing Strategies That Work - June 08, 2020

Zacks Equity Research
·4 min read

Have you ever dreamed of being that one in a million investor who has the talent to perfectly time the markets?

In fact, even among long-term investors who don't attempt to time the markets, being able to call the top of the market is a skill that many think they possess. This misguided confidence is often driving investors to sit on the sidelines and wait it out for better market opportunities.

Lost chances by those who attempt to time the market is a common mistake among those who trade their own accounts. How many traders have lost investing opportunities by choosing to wait for the Retail-Wholesale stocks to correct or reach attractive entry levels? Only for them to continue to move higher and achieve new all-time highs: AutoZone, Inc. (AZO), Abercrombie Fitch Company (ANF), Arcos Dorados Holdings Inc. (ARCO), Aarons, Inc. (AAN), ASOS PLS ADR (ASOMY)

Anxiety and eagerness regularly lead investors into psychological traps because most investors take cues from past market moves and trends instead of attempting to anticipate potential market moves.

Successful market timing requires three key ingredients: 1) A reliable signal to tell you when to get in and out of stocks (or bonds, gold or other types of investments). 2) The ability to interpret the signal correctly. 3) The discipline to act on it.

Market timing is commonly perceived as the ability to guess the exact market top or bottom and make moves accordingly. However, there is a less common, rather straightforward market timing strategy that has been utilized effectively by insightful financial specialists like Warren Buffet for a considerable length of time.

Rule 1: Never try and time tops and bottoms.

Forget tracking for market tops or bottoms to expand your odds for success with a longer timeline and give yourself the flexibility to eventually profit, regardless of whether your calls are spot-on or way off-base.

Rule 2: Try not to sell amid little crashes - instead exploit the opportunity by buying.

Warren Buffett has made an incredible piece of his fortune because of this basic standard. He cautions not to sell amid little crashes and to instead endure the temporary hardship and profit by concentrating on the long haul.

There is a noteworthy distinction between a complete market meltdown and a common 10% market correction. The theory is that if you like and bought a stock at a previous valuation prior to the correction, you should love the opportunity to this same at a steep discount since the underlying fundamentals are most likely still intact. Warren Buffett takes this thought a notch higher and frequently goes on a buying binge when markets turn, purchasing additional shares of his favorite stocks at a major markdown and tuning in to his own recommendation of being greedy when others are scared, and being scared when others are greedy.

When It Comes to Trading Your Retirement, A Risk Adjusted Trading Strategy Should be Followed

It's only human that many succumb to greed and try and game the system by timing the market. But, think about this: Nobel Laureate William Sharpe found in 1975 that a market timer would need to be precise 74% of the time to beat a passive portfolio. Even a slight outperformance probably wouldn't be worth the energy - and given that even the experts generally fail at it, market timing shouldn't be your exclusive investing strategy of choice, especially using assets earmarked for your retirement.

Chasing alpha, outsized, short - term returns through market timing and other high - risk bets is acceptable only within a small part of your investable resources, however for your long - term retirement assets a 'risk-adjusted' investment discipline is what largely bodes well.

If you'd like to learn how to 'super-charge' your retirement assets, get our free report:

Will You Retire as a Multi-Millionaire? 7 Things You Can Do Now.


This report can help you maximize your retirement nest-egg without the high risk of attempting to successfully time the markets. Click here for free report>>
 
AutoZone, Inc. (AZO) : Free Stock Analysis Report
 
Aarons, Inc. (AAN) : Free Stock Analysis Report
 
Abercrombie Fitch Company (ANF) : Free Stock Analysis Report
 
Arcos Dorados Holdings Inc. (ARCO) : Free Stock Analysis Report
 
ASOS PLS ADR (ASOMY) : Free Stock Analysis Report
 
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