BeMarketSmart

 How To Time The Stock Market – An Introduction

Ask most investors, or investment experts, and they will nearly all tell you that it is impossible to time the market. Those that disagree are in the minority and I am one of them. I would say that, yes, you can time the stock market. How would you like to see a stock market timing method that is not difficult to implement and is consistently profitable? One that words regardless of what the economy or stock exchange is doing.

No doubt, over the years, you have become familiar with and probably used a buy and hold strategy. Buying blue chip stocks in a well recognized company or companies and holding them for long periods is what buy and hold investors historically have done. This method does not allow you to time the stock market successfully.

In years past the buy and hold strategy might have produced a profit but it is increasingly difficult to do so in the environment of the last ten years. Today the environment is much different.

At the top of the market in late 2007 a buy and hold investor may have felt like a modern day stock market whiz. By March of 2009 though confidence was transformed to terror and the stock market plunged and found a new low.

But the market has made a comeback you say. Yes and no. It is stil significantly below the previous high. The value of the buy and hold investor’s portfolio is very likely still in the negative.

The majority of stock prices go lower when the stock market is trending lower .For the most part, stock prices go higher when the overall market  trends higher. Why would you or anyone want to own stocks when the market is trending lower? You don’t. You want to own stocks when the stock market is trending higher and you would want to short stocks when the market is heading down.

You absolutely must invest with the trend for investing success You want to time your investment decisions on the basis of whether the stock market is trending higher or lower.

All you need to determine the trend of the stock market is a one year daily chart of the S&P 500 Index and a 10-day and 30-day moving average. I like to use the exponential moving average. This is what you need to successfully time the market.

One would purchase stocks or an ETF index fund when the 10-day average crosses above the 30-day average. That crossing becomes your buy signal. You short stocks or buy a inverse ETF index funds when the 10-day average crosses below the 30-day average. That downward crossing is the sell signal .It is really no more complicated than that as long as you maintain an objective discipline and don’t try and make guesses or predictions.

For your own comfort you may want to set up the S& P 500 and do a simple backtest to see just how profitable this can be. Use an ETF index fund for going long the market and an inverse ETF index fund for going short the market when following a sell signal. The same strategy works fora stock or stocks and you should be able to sell close to a high and buy very close to a bottom.

If a long-term investor was using this strategy they would have been out of the market within a few weeks after the Dow made the October bull market high in 2008. And as the stock market moved lower there was  alot of money to be made  shorting stocks heading towards a bottom or by owning one of he  inverse ETF funds.

You’ve heard and probably believe that beginners are born to make the same basic investment mistakes. I believe that the all time worst mistake is simply the failure to exercise a consistent discipline. You can experience incredible results trading and your income will be proof if you just have discipline. Discipline allows you to time the stock market successfully and you can’t afford to ignore its importance.

At times the indicators will produce “whipsaws”, opposing signals within a short period of time.Over the longer term thogh  you will be on the corect  side of the market and maintaining profitability. Brokers may call for black days of decline in the economy or eve a bear market’ crash but you only need listen to your indicators, your new best source of good trades advice.

Being correct one hundred percent of the time is not a requirement for being able to time the stock market. Typically even being correct less than fifty percent of the tme can produce extremely profitable results  You can be wrong one week but right the next week with a big winner. In the long run your success will be determined by your winners being larger than you losers. From time to time you will actually experience incredible jumps in your profits and trading income. Large profits and small losses will make for profits over time. All-time highs and lows will come and go with ability to increase and reinvest your profits in-between.

The simple timing strategy described herein would have signaled an investor trade long by the end of March 2009.  If they had purchased the Pro Shares ETF long S&P 500 index fund on that day they would likely still be long in November 2010 with a very respectable gain on their investment.

You can be invested on the right side of the stock marke and want with even this simple market timing method. Yes, one can successfully time the market and conserve and grow capital well beyond buy and hold results. It actually takes very little work once started and you will be able to watch your profits grow even during the worst world markets. You can win regardless of what other people think or do.

The tools needed for this success can be no more complicated than a decent charting program, end of day will do fine, and the ability to install and follow two moving averages. You can increase your gains and finally look forward to reinvest your profits because you are able to time the stock market.

Related articles

• The First 5 ETFs You Should Ever Buy (fool.com)
• Enhanced Index Funds: Can They Deliver Low-Risk Returns? (blogs.forbes.com)

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