Should you be bullish now? Is this the time to be bearish? When is it best to sell all your holdings and sit on the sidelines in cash? As an investor, you will be troubled with these decisions. It is a constant mental-emotional struggle you deal with every day.
You cannot time the stock market. Financial advisers discourage you from trying to time the stock market. They tell you to study the company’s fundamentals, and buy the stock if it looks right to you. To make profits over time, they maintain that you must use Buy and Hold as a method. This can work, but is extremely time consuming and if you choose the wrong stock, you lose. Studying the overall market, you would have lost over 27% over the last 10-years. This is looking at a broad cross section of stocks in the S&P 500. How much sense does it make to buy and hold over a 10-year period just to lose money?
Have you used these methods to time the market? Some of these will sound ridiculous to you, but these methods are followed by many people:
**Buy & Hold – Hasn’t worked over the last 10-years
**Buy a mutual fund and let the “experts” invest your money for you – similar to buy and hold
**Dollar Cost Averaging – You simply buy a fixed number of dollars each month
**Buy utility stocks – They pay good dividends, but what if the price of the stock falls . . . they have
**Turn off your TV and don’t listen to the talking heads
**Buy what your best-friend is buying because he knows a lot about the stock market
**Use Money Magazine to discover investing opportunities
**Buy several advisory newsletters
Emotions can affect your market timing decisions The sensible way to time the market is to find a market timing service that has demonstrated, verified results. Once you have found the service that you like, you should approach it scientifically. To be successful, you will need to take every trade – make sure that the amount you invest is small enough that you can afford to lose it!
You will be given signals that turn out to be wrong and you will lose money. Hopefully, you will be given some signals that turn out to be right. The problem is that you won’t be able to tell which signals to take ahead of time. Therefore, you have to take every one. That is why you limit your investment to an amount that you can afford to lose. Don’t vary the amount of the dollar investment in each trade. Make it a consistent amount You don’t want to change the size of the investment depending on how good you feel the signal is Don’t let your emotions enter into the decision to take the trade.
Can you lose three trades in a row? This can and probably will happen. No market timing system wins every time, However, if YOU are consistent in following the signals, and if the timing service is good, then you will gain over a period of time. After a year or so of experience, you will have confidence to take some of your winnings, and increase your position sizes Don’t increase the amount too large, or you will become emotional, and you won’t be able to take losses.
As human beings, we think we understand statistics and probabilities. People understand that if you flip a coin 500 times, you will get approximately 50% heads However, when it comes to investing, people tend to look back over their results and think that they could have made more profits on their own – Monday morning quarterbacking. If you do think you can out trade a good timer service, then you have to also believe that you are one person in 10,000 There are a few, very few, people who know just which stock to buy and when to buy it. Perhaps you are that person.
In summary: Get rid of the timing methods that don’t work. Try a method that has worked for a growing number of people who aren’t wimps and can follow a system of investing. It isn’t easy to follow a market timer, but if you do it right, you will win…and over time, you can win very big.
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