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Simple Market Timing Strategies That Work - October 11, 2019

Zacks Equity Research

Being that unique investor who has the power to constantly time the market and continually make a profit is the dream for most traders and investors.

Indeed, even among those investors who don't try to consistently time the markets, many think they can still call a top and act opportunistically. It's at these times when an investor who speculates often sits on the sidelines and looks for better opportunities to put money into the market.

Missed investing opportunities by exiting at the first sign of trouble is a common pattern among many self-directed investors. Case in point: How many investors have missed huge opportunities waiting for the Auto-Tires-Trucks stocks listed below to correct, only to see them reach new highs, climb higher and drive the bull market to record levels: Aisin Seiki Co. Ltd. Unsponsored ADR (ASEKY), Brilliance China Automotive Holdings Ltd. Unsponsored ADR (BCAUY), American Axle & Manufacturing Holdings, Inc. (AXL), Auto Trader Group (ATDRY), Polaris Industries Inc. (PII)

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.

Fruitful market timing requires three key parts: 1) A solid sign to guide you when to get in and out of stocks (or securities, gold or different kinds of investments). 2) The capacity to act on the sign accurately. 3) The control to follow up on it.

Many investors believe that market timing is a short-term investment strategy. There is a less known, more effective, longer-term market timing approach that has been used successfully by astute investors like Warren Buffet.

Rule 1: Why trying to time the tops and bottoms of the market is a dead end.

Abandoning the goal to time the tops and bottoms precisely gives you the flexibility to profit, thereby increasing your chances to lock in built-up profits even if your calls aren't exactly right.

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

Warren Buffett has made his fortune based of this straightforward guideline. He cautions not to sell during little crashes, and encourages enduring them by concentrating on the long haul.

There is a noteworthy distinction between a complete market meltdown and a common 10% market correction. If the companies you own are established and successful, they are likely to return to their pre - crash price before long, making holding on the wisest decision. 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 consider this: Nobel Laureate William Sharpe found in 1975 that a market timer would have to be accurate 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.

Actively trading for alpha, outsized, short - term gains through market timing and other high - risk trading strategies is fine with a small portion of your investable assets, but for your longer - term retirement assets, a "risk -adjusted focused" investment solution generally makes more sense.

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Aisin Seiki Co. Ltd. Unsponsored ADR (ASEKY) : Free Stock Analysis Report
 
American Axle & Manufacturing Holdings, Inc. (AXL) : Free Stock Analysis Report
 
Polaris Industries Inc. (PII) : Free Stock Analysis Report
 
Auto Trader Group (ATDRY) : Free Stock Analysis Report
 
Brilliance China Automotive Holdings Ltd. Unsponsored ADR (BCAUY) : Free Stock Analysis Report
 
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