No timings can perfectly predict the behavior of any trade, but their application will lead to better understanding of the behavior of the market and cut losses. Some such strategies are:
Past experience and behavior of the stock market can give one certain clues as to the outcome of its present mood but it is also true that shares perform in surprising ways time and again. If the failure rate is any indication, it is better to abstain from short-term timing.
Long-term, which is also subject to the rules and mood of the market, shows a different picture. It has lead majority of the investors to success. The essential difference between long-term and short-term timing is, the later involves lots of guess work and unfounded hopes. Successful timing must rely on a well-informed prediction of how shares are going to perform in the future. To understand this aspect, the analyst and the researchers generally go by the past records and try to understand the behavior of the share. The educated guess is that the good stocks will continue to perform better. The indicators of the past are clubbed to the present realities to make the forecast. Ultimately the best support of the share price comes from the earnings of the company in question. Such earning depends upon the economic realities.
In the short-term, trading has nothing to do with the economic realities. The investors push the prices to absurd levels, for the reasons known to them and pull prices down also to absurd levels. This swinging pendulum has to come to a stop ultimately, when the economic realities, the true and authentic support for the share price, prevail. Share values return to the fair base as per the income potentialities of the company.
They say, ‘you can fool all for sometime, some for all time, but not all for all time!’
This principle applies to share investing also. When luck is on your side, you may toy successfully with the trades for one or two years, but in the long run the share market bows down respectfully to the economic realities.
It is incorrect to make frequent changes in your stock allocation. Once you have created a portfolio, which could be the mixture of short term and long term investments, with proper stop loss levels, resist the temptation to become too smart and do not default in the implementation of the insights you have developed from your research and analysis of the historical data.
Waiting until share prices enter a serious decline to sell them could be a serious error of judgment. You need to act resolutely at the stop loss levels set by you when you entered the trade. You know that the shares are risky at the current price and yet you hold on with the wishful thinking that the prices will rise. That may land you in serious trouble. If the risk level to a particular share or portfolio as a whole is too high, immediate corrective steps are necessary. Your confusion whether the present trend in the prices is a serious decline or a non-serious decline and the time lost in such deliberations, may cause more damage to your portfolio.
Never overreact to the conditions in the market and never buy overpriced shares. This is again a matter of your judgment on the basis of your research and analysis.
Not aggression and not dejection is the quality of the successful market timers. They keep their heads cool when the fellow-investors are on the selling spree. They keep the bulls and bears at arm’s length and act according to independent views. Such investors will control their emotions and live life in a healthy way to see the sunny days in the share market again. To them, no situation is grim. For, they have always chosen the moderate course and have adopted Valuation-Informed Indexing as the investing approach.
Buy according to the merits of the share considering the time-factor. Buy, never too early or never too late!