Stock Market Timing, Timing the Market

Strategizing the buying and selling of shares by predicting future price movement is called stock market timing. This strategyis based on the belief that a stock’s price movements can be predicted through systematic analysis of the stock’s past performance.

Timing the Market: Is it Really Possible?

The concept of stock market timing focuses on the cyclical trend that is followed in the stock market. However, the concept ofmarket timing continues to remain an issue of serious contention between conservative academicians and liberal market traders.

Opponents’ view: Those who are academicians and scholars in the realm of stock markets believe that timing the market is simply a myth. A statement made by Nobel Laureate Paul Samuelson in the Journal of Portfolio Management is that investors who depend on market timing reports are more likely to suffer losses than those who prefer the long-term route of bond investments. The sheer intensity of losses faced by shareholders claiming to follow stock market timing shakes the very foundation of thisconcept.

Proponents’ view: A lobby of active traders claims that the ‘buy and hold’ strategy wipes out any margin of profit. The leading German stock trader Uwe Lang propagated selling equities within five days from the start of a downtrend and repurchasingthem when the markets show signs of improvement. Those who support this view believe that the strategy may not always trigger profits, but the number of correct predictions has been higher than incorrect ones.

It is advisable for investors to strike a balance between these two approaches so as to enhance investment returns. The middlepath can be equated to diversifying your stock portfolio such that some stocks reap early profits, while others are nurtured in apassive way to deliver returns in the long term.

Pros and Cons of Market Timing

Stock markets can only be timed to a certain extent. While stock market timing strategy uses predictive logic, it may neversucceed to pinpoint the exact top or bottom end of the market. Volatility makes it difficult to achieve such accuracy. However, agood market timing system can identify large trends and help investors to realize huge profits.

A calculated investment in both bullish periods and bearish phases would reflect the typical use of stock market timing in a highly profitable manner.