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Markets go up and markets go down. It shouldn’t matter much, but many new market timers find that their own personal mood fluctuates with the markets, moving from extreme euphoria as the markets soar to new heights to deep despair when the markets plunge to new lows.

Why do market trends have such power over emotions?

They don’t need to, but many new timers have difficulty cultivating an objective mind set. They allow fear and greed to influence their trading decisions.

They tend to follow the masses, and when they go with the crowd, they soon find that market trends not only influence their moods but their account balance as well.

Following The Crowd

There’s a strong tendency to follow the crowd. There is a feeling of safety in numbers. When you see a steady upward trend, you feel secure. Everyone is buying. They are all doing the same thing.

When other people offer confirmation of your decisions, you feel safe and assured.

In a bull market, it isn’t so bad to follow the crowd. When it’s a strong bull market, the crowd is often right, and it makes sense to follow them.

However, when the market turns around, feelings of safety and security can turn quickly into fear and panic. Why? One reason reason is that many new market timers don’t have the ability or financial resources to sell short, and take advantage of a bear market. But there’s a psychological issue as well.

It is difficult to know how to handle falling stock market prices. For example, humans tend to be risk averse. When one is going long and the markets suddenly turn, it’s hard to accept losses, and sell off a losing position before more damage is done.

Denial and avoidance set in. At that point, a trader with Read more…

As a market timer, the one thing we must always remember is that the markets can, and most definitely will, throw every possible hardball, curve ball, fast ball, knuckle ball, etc. at us.

The reason we invest in the stock market is because we recognize the huge potential for profits. But we are not in safe money market funds. We are timing in a freely traded market that is subject to the emotional whims of traders. And when money is involved, those emotions can, at times, be extreme.

We became market timers because we have realized that not only is there “no easy money” but also that the stock market will do all it can to “relieve us” of our money.

We are more than uncomfortable with the buy-and-hold approach to investing, and realize that although buy-and-hold may be fine if you are willing to wait 20-30 years, it can lead to huge losses over shorter time frames. The most current example being 2000-2002 when the S

If you’re not careful, you could be your own worst enemy.

There are many different ways to sabotage your efforts as a market timer. Some of them are at the forefront of your mind, such as not trading the strategy, while others are deep seated; they lurk at the back of your mind and work behind the scenes.

Make sure that you are not unwittingly sabotaging your own efforts to time the markets profitably.

Trading By The Seat Of Your Pants

Many market timers are conscious of how they ruin their own market timing efforts.

The common way is to make buy and sell decisions by the seat of one’s pants. Rather than following a timing strategy, those new to market timing often make their timing decisions as they go along.

What usually happens, unfortunately, is that one doesn’t have a clear idea of when to enter, exit, or what to do when market conditions don’t meet their expectations. And market conditions “usually” do not meet anyone’s expectations!

Without clear buy and sell signals, one is likely to panic at key moments in a market timing strategy, and act impulsively.

It is common for new market timers to say, “I don’t know what it is, but I can’t stick with my timing strategy.”

The usual explanation, however, is that the trader is not actually following a strategy at all. All successful market timers need a clearly specified strategy that can be easily followed. A clear roadmap is the best weapon against self-destruction.

Controlling Risk

Traders also sabotage themselves by failing to control risk adequately. Carelessly risking substantial amounts of capital on a single trade is one example. This is likely to produce a significant blow to one’s account balance should the trade be a loser.

Whether the outcome is favorable is not the only relevant issue, however. Merely knowing that one is taking an enormous risk carries a toll psychologically.

The added stress usually takes the form of extreme impulsivity. The best antidote to this problem is to carefully manage risk and lessen the potential Read more…

Short term market volatility is powerfully influenced by fear and greed.

But fear and greed aren’t the only emotions that influence market decisions.

Other emotions, such as disappointment and regret, can also impact what market timers do and can have adverse effects on their timing decisions.

It is only normal to feel “disappointment” when our trades fail to meet our expectations. We feel “regret” when we think that we have made a poor decision that could have easily been avoided.

There’s an assumption that underlies both emotions, and both of these assumptions can be dangerous to our ability to be profitable.

Must We Always Be Right?

We may believe irrationally that as market timers we must always be right and each buy and sell outcome must meet our expectations. If those expectations are not met, we believe it’s not only unacceptable, but our fault. That it proves we are unlucky as timers, or that the markets always move against us.

This assumption, however, must be questioned. And by doing so, you will be able to create a mind set that will help you to make your timing decisions decisively and without worry.

It may be unpleasant or an inconvenience when our expectations are not met, but it isn’t so terrible, awful, unacceptable or our fault.

Changing Our Perspective

First, you have to be able to execute. Following a tested timing strategy is crucial. The common trading errors of not taking trades until you see if they are profitable, or jumping the gun and taking trades ahead of time because you “think” a signal will be issued soon, can be a disaster to your profitability.

By not sticking to a timing strategy, you allow emotions to rule your finances, and that places you right in with the majority of investors. Those who are the cause of the market’s volatility. The “herd” followers.

At FibTimer, all of our strategies are non-discretionary. Emotions are not allowed. Our strategies offer disciplined execution of non-emotional buy and sell signals.

The reason for following any timing strategy is to “remove” yourself from making emotional trades. To remove yourself from the herd, which is often headed in the “wrong” direction.

By merely changing our perspective, we can change how we respond emotionally to market timing setbacks. If we believe they are our fault, or a result of some rain cloud that follows over us, or that we are just not cut out for market timing, then we are going to experience extreme feelings of disappointment and regret.

Extreme feelings of disappointment and regret cause us to miss trades! This is the single most common reason timers fail. They allow their feelings to keep them from following their strategies. And this usually occurs at the most inopportune times.

However, if we assume that setbacks and losses are “inevitable,” that they are to be expected in even the most successful of market timing strategies, in fact that they are caused by market fluctuations that are beyond “anyone’s” control, we will be prepared to cope with them.

We will come to expect them, and we are likely to think that they aren’t as terrible as we had assumed they might be.

Anticipatory Approach To Trading

By taking an anticipatory approach to trading, not only can we rein in our emotions, but we can put a market timing buy or sell signal in the proper perspective.

Remembering that a single trade is just one trade among a series of trades and the only outcome that matters in the end is the overall profit across the series of trades.

Across a typical series of trades there will be winners and losers, and usually more losers than winners. But the winning trades are much larger than the losing trades because they are made when the market trends! And market trends, by their very nature, last for considerable time frames.

Once we accept this fact of trading, we will be able to see that setbacks aren’t as terrible and devastating as we had thought. They are Read more…

Successful market timers, meaning profitable market timers, have several “common” beliefs that help them achieve consistent profits.

On the flip side of this, those who are unsuccessful also have a set of common beliefs.

It is a good idea to know which beliefs will help you to succeed, and which ones you may have, that need to be changed.

Beliefs of Successful Market Timers

1. I will not jump into a trade before or after a signal just so that I can be participating.

2. I recognize that discipline is not a concept, it is an absolute necessity. The markets have a way of removing money from undisciplined market timers.

3. I realize that what happens today, this week, or even this month, is not what is important. What “is” important is my success over time.

4. I realize that losses are part of trading. No strategy is without losses.

5. I accept that sometimes my investments will under perform the market, knowing that over time, they will outperform the market.

6. I know that following a timing strategy through good times and bad are what will make me successful.

7. I can follow a strategy for the long haul and stick with it, even when at times it is discouraging.

8. I accept that following a timing strategy will require me to make frequent trades that may seem like mistakes. A string of successive small losses will not make me quit.

9. I can ignore the mass media, which raise emotions and thus increase the risk of not executing a trade. It is often the trade that is hardest to take, that winds up being the most profitable.

10. The markets provide a constant stream of opportunities. If I miss an opportunity, another one will follow.

11. Keeping losses small and letting profits ride is not just a Wall Street saying.

Beliefs of Unsuccessful Market Timers

1. I must be trading all the time to be successful. I am uncomfortable when in cash.

2. If my strategy is not doing what I think it should, I will make a change immediately.

3. If I lose on this trade, I feel like a loser.

4. If the market is rallying, I must get in even though my strategy gave no signal for it.

5. I am unlucky.

6. I get very upset when I miss a rally, or if I am in a bullish position when the market is declining.

7. I dread adverse news events and constantly worry that something will happen to make the markets go against me.

8. I can’t afford to lose anything on this buy or sell signal.

9. I can’t go broke taking small quick profits.
10. When this losing trade gets back to even, I’ll dump it.

The Mark of the Unsuccessful Timer

Unsuccessful market timers tend to Read more…

Predictable vs. Unpredictable?

Many traders and investors set goals. Typically, a goal might be to achieve a 15% gain every year.

Although it is pretty obvious that the markets cannot be depended upon for a “steady” rate of return, the question is, is it even a good idea to set such goals?

Would you rather have a steady return of 15%, 15%, 15% over the next three years? Or an unpredictable rate of return with potential drawdowns, say, -5%, 50%, 20%.

Assuming the goal of 15% is set for the next three years and you have an investment of $1000 to start, 15%, 15%, 15% means in three years your investment would be worth $1520.

But what about the unpredictable returns? -5%, 50%, 20% over three years will increase your original investment to $1710, even though you spent the entire first year losing money.

Catch A Trend, Let It Ride!

Market timers using trend following strategies such as those at FibTimer.com have no desire to try and reach, or to force results to meet, a preconceived profit target.

If, for example, we set a profit target of 15% and exited one of the incredibly profitable short trades in the 2000-2002 bear market, we would have greatly reduced our realized gains. Why exit a trend at 15%, and then sit on the sidelines watch the market go up another 60% or 70%.

In fact, we have no profit targets. Our goal is to catch every tradable trend, and when we do, to let it run as far as we can before exiting that trade.

That means when there are no trends, we will have no gains or possibly small losses. But it also means that when the market does trend, and history shows that markets are in trends 80% of the time or better, that we will let our profits ride and take every bit of the gains.

Trading Every Trend

One issue faced here at FibTimer, and we expect faced at all timing services, is the pressure felt by nervous subscribers. Believe us when we say it is an issue. We read and reply to all emails.

But here is our answer to nervous subscribers. If we reduce risk as well as reduce volatility in our strategies, in order to minimize drawdowns (during those times when they occur), we also lower returns over time!

There is no way to trade all trends without taking the risk that the current trend might be a false one. Risk management used at FibTimer limits losses and protects capital, but at times, losses are inevitable.

By trading every Read more…

When the financial markets are extremely volatile traders can feel their stress levels rising. But there is no reason to be stressed if you are diversified. If a position turns into a losing one, but that position is only 10% of a well diversified timing portfolio, you will not feel the same as you would if it was your entire portfolio. Diversified portfolios are just as profitable, but you sleep better.

The current markets are quite volatile. Rallies lasting only days, followed immediately by sell-offs. Volatility is great if it is within a trend, but volatility that only moves the markets up and down quickly, within a sideways (trendless) trading range, can be quite unsettling.

Such markets are great for day traders, or should we say those who happen to be nimble enough to take quick profits. But for market timers and trend traders, the “lack” of a trend often results in small losses.

While no one wants to lose, we must keep things in perspective. Remember the saying, “keep your losses small, and let your profits run.” That saying has been around for a long time for a good reason. There are times when you generate small losses, and that is just a fact of active market timing and in fact all trading.

We should not lose sight of the second part of the saying… “let your profits run.” This is what all market timers look for. The next trend “is” around the corner. There is always another trend, and when it begins, the profits are made. There are powerful trends in progress right now! Look at the gold, the dollar and bonds.

Diversification Has A Place In All Portfolios

Remember that while very aggressive timing strategies do incredibly well over time, they can be frustrating over short time frames. During such times it is comforting to be at least somewhat diversified. We have spoken about and recommended diversification within timing strategies many times in this column. Believe me, it has its place in “your” timing portfolio.

If aggressive timing is causing you heartburn, try diversifying. One of the easiest ways to diversify, while still actively trading the markets, is to use sector funds. Let’s take a look at the advantages of sector timing.

Trading The Sectors

How does a mutual fund market timer take advantage of volatility, while protecting himself or herself from the very real risks such volatility creates, as well as from the potential drawdowns that can occur during such times? The answer is by trading the sector funds. Here is a “quick” list of reasons why:

1. Diversification: By having small positions in multiple industries, you reduce exposure to any single industry being affected by a negative news event.

2. Volatility: While individual sectors are no less volatile than the rest of the market, they do not move together. So the volatility to one’s portfolio is considerably reduced.

3. Drawdowns: Because sector funds go to cash during sell signals, and because there are always some funds in bull markets at the same time there are others in bear markets (during which those sectors are protected in money market funds), drawdowns are kept to extreme minimums.

4. Good in All Markets: There are always single industries in their own bull markets. Even during a cyclical bear market, such as we experienced during 2000-2002, there were always some industries moving higher. And if not, you are still protected by being in money market funds.

5. Active Timing: Though sector timing is not aggressive, it is certainly active. You will always be trading the bullish sectors, and exiting the under performing ones. In some respects, it is the equivalent of Read more…

As market timers who trade trends, we are always on the lookout for a new indicator or strategy that might give us a better edge and improve results. Education and research never end.

Many hours are spent testing every conceivable timing method. We study suggestions submitted by subscribers (always appreciated), ideas garnered from analysts seen on TV, books offering trading strategies and sometimes spend hours just trying to improve current strategies.

You name it and we have read it, studied it and spent many hours researching it.

Changing Methodologies To Meet Current Market Conditions

A good friend emailed the following, “A trader puts himself a great risk of failure trying to guess what the markets are going to do and changing methodologies to meet current market conditions.”

How true. Yet so many investors do just that.

They will follow a timing strategy, but when the strategy makes a move they are not comfortable with, or the strategy takes a loss, they either hold back on that buy or sell signal, or search for another market timing service that agrees with how they feel at the moment.

They search for someone who will “promise” huge gains. Who will say they have achieved unrealistic profits over previous years. Who will promise them the world (just send your hard earned dollars).

We emphasize “promise” because so many services will do just that to entice you to subscribe.

They are out there. We have seen so many websites offering guaranteed profits of 50%, 75%, 100% (or more) a year we have stopped looking at them.

Some actual statements copied from market timing websites, “up over 1000% since 1999,” “gains averaging from 61% to 263% annually,” “Up 1500% in 4 Years,” “annual returns above 100% with only few trades a month,” “up over 900% since January.”

We personally watched a new market timing service, who’s owner asked us for advice (and who’s service will not be named here), post years of incredible gains, all achieved by back-testing. Gains averaging 60% to 80% a year!

They started their new service last year and by year’s end had achieved a loss. Real time trading is completely different than back-testing. Anyone can back-test and achieve wonderful results, but real-time pits you against the real world.

Getting back to that new website, at the start of this year, those losses disappeared. I looked. They are nowhere to be found. All I could find were beautiful charts showing how much you would have made, had you followed their strategy for the last ten years.

It is so easy to make your results look better than they are.

Please do not fall for such scams.

Making money in the stock market is not easy. It takes hard work and patience. Anyone who says they have the key to easy money is lying. We received an email just yesterday advertising 288 winning trades with only 3 losing ones. Sure… There are people still buying the Brooklyn Bridge too. At FibTimer we tell all our subscribers that losses are inevitable in trading. The trick is to keep them small.

We also post every trade, and keep those trades posted on the website for years. Every strategy has a link to a “Trading History” page with complete trade history and details for that strategy.

If achieving profits in the stock market were no more difficult than going shopping at your local supermarket, everyone would be a billionaire.

FibTimer offers solid results by trading “all” trends, for subscribers who “stay” with our strategies and do not exit at the first small loss or inconvenient news event.

The Grass Is “Usually” Greener During Drawdowns

Typically, market timers experiencing a Read more…