What is “Timing the market” anyway? “Timing the Market” is actually considered by many to be a useless exercise. Timing the market is indeed useless if it is done the way that some think it is done. Yet, it is actually a matter of having a good selling strategy or a stop loss system aided with a good buy strategy. Experts in timing the market do not buy shares in a stock because they feel that a stock is too “good” to own, or either sell because they feel it is too “high”. Instead they buy because there is a buy signal, and they sell because there is a sell signal.
One example of a simple timing system for the market may be expressed as follows. When you buy an undervalued stock and when it closes above its 150th day moving average but only after that its average has started to rise. You will then sell if the stock that closes below its 150th day moving its average but only after that average has begun to decline.
A 10th day moving average or some other moving average may be used instead of its closing price in order for you to reduce a whipsaw effects, and other moving averages that could be used instead of using of the 150th day average, but it will depend on the person’s investment time-horizon. So you have to remember that those who do not abide to the set of rules of selling are begging to the market to teach them the lesson again of getting it right.
The proper trading system needs to be tried out and tested before being enacted. When you find the strategy that will work for you, then you are prepared to actually buy shares and use the system you have developed. One problem with timing the market is the possibility you will walk away from potential profits if the stock has merely dipped and then rises again. This may not be a problem if you have found another winner that more than makes up for the missed out on profits.
