The Market Timing Approach: A Guide to the Various Strategies
by Joseph Ludwig
With technical analysis enjoying a renaissance on Wall Street, can market timing—which is firmly rooted in technical analysis—be far behind?
Over the past few years the application of market timing by individual investors, as well as registered investment advisers, has accelerated rapidly. Contributing to the growth of timing has been the proliferation of computer capabilities, the availability of data, and the growth of mutual funds.
In this article
- Market Timing Variations
- Strategy Components
- Fundamental/Forecasting
- Overextended
- Cyclical
- Pattern Recognition
- Seasonality
- Artificial Intelligence
- For More Information
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Market timers believe that it is possible to identify market trends early enough at their start to successfully position investments in equity, bond, or money market funds. Buy-and-hold advocates argue against this approach, maintaining that it is not possible to successfully time the market on a continuing basis. Many articles on market timing—including those in the AAII Journal—tend to focus on the debate between market timers and buy-and-holders. What gets lost is any detailed discussion of market timing itself—what it is and what the primary strategies are.
This article skips over the debate (although I am clearly in the market timing camp) in the interests of simply explaining the market timing approach.
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Discussion
I find it amazing that so many people disparage market timing. Yet, virtually every time they decide to buy or sell, they are making decisions that the price will either go up or down -- and that is market timing.
"Buy Low" & "Sell High" is another name for market timing. You don't have to be shooting the highest high or the lowest low -- just trying to get somewhere close is still market timing.
posted 9 days ago by George Macdonald from Pennsylvania
I believe there are two aspects to Market Timing,not just the Technical Aspect.
First,the Fundamental aspect,(Index PE,PBV,PSR,Govt Bond Yields/Earning Yields etc etc and others) compared with historical Fundamentals.
Secondly, Sentiment and Technical short term indicators (VIX, AAII sentiment Indicators,RSI, MACD and others).
When both indicators are too high, we have the imminent probability of a full blown bear market, or too low, the imminent start of a new vigorous bull market.
When only the Technical indicators show up too high, it usually foretells a correction in an ongoing bull market, or too low, a temporary upswing in an ongoing bear market.
I categorise all these indicators in terms of a percentage position up from a theoretical bottom based on historical levels. When both indicators exceed 80% a serious bear market is imminent,when below 10% the start of a new bull market is due.
In early March 2009 a nadir of 2% was reached in both indicators,following an earlier extreme high of over 85% in both during late September 2007. Both proved accurate and worked wonders for my Investment Results.
The S&P 500 is now at 52% (Fundamentals) and 57% (Sentiment) so Market rises are still to come.
posted 7 days ago by John m Welford from Illinois
Hi John,
I do agree on Dual Aspect view
Do you mind explaining more about your system and in practice how do you track all that on a regular basis.
Thanks
posted 7 days ago by Hitesh Patel from Pennsylvania
