Market Timing

Results of Miscalculating the Bull

Any good trading system contains two elements: (1) Market Timing, which tells you to be long, short, or in cash, and (2) Selection, which tells you what to buy and sell.

Now it is commonplace for people to say "You cannot time the market." This is certainly true if by timing the market you mean that you can avoid all losing days and only be in the market on the winning days. But the market does, as a whole, trend. There are ways to identify the trend and take advantage of it.

Several people have coded market timing signals using Trade. These signals work with varying degrees of precision. In addition, there are proprietary signals that may be used.

For timing with signals, see Market Timing with Signals.  

For a good explanation of the way William J. O'Neil, the inventor of CANSLIM and the publisher of Investor's Business Daily, determines that the market is going to rally, see this article.  Unfortunately, the article says nothing about how to determine when to sell.

I mention it elsewhere, but TimingCube has provided an excellent signal for several years.  However, at this time - July 2006 - I cannot recommend it because of a number of bad calls.  August 20, 2006: TimingCube has revised its timing system.  The results are much better, but of course this is hindsight.  Still, they have sense enough to know that something had to be done.

For a graphical way to time the market or individual funds, see PRISM.

Dr. Steve Sjuggerud, writing in the Daily Reckoning, has a simple 1-2-3 model, which should be useful as a sort of Check for Reasonableness. I have copied the entire article, since there is no way to give the URL on that site. I did add the date of the article. I do not agree about the age business, but that is another matter.  Note:  April 19, 2006.  This signal has been consistently bearish.  I doubt its value.

But above all, do not listen to the gurus on CNBC that tell you to buy now because things will be better soon. And remember that the mutual fund companies want you to be always invested, because they get their fees only when your money is in their fund.

In fact, there is a fundamental conflict between the goals of the individual investor and the goals of a mutual fund company: The investor wants to make money by buying the fund and watching it go up. The fund company wants to make money by selling the fund and getting the fees, which apply no matter what the fund does.

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