Is it possible to time the market? Should you even try?
If you have followed some of the so called financial gurus on the media channels they tell you that you can’t time the market. They say you should just invest in an index fund, and just hope for the best. They say it is impossible to try to time the market so don’t even try.
The problem with those people who claim that you shouldn’t try to time the market is that they are in fact trying to gauge fundamental value and trying to time the markets themselves. They just don’t want to admit it. They get on their high horse and exclaim that you should “invest for the long term” and don’t try to time the market.
They are a bunch of lying scoundrels who lack intellectual and market clarity.
Why is this so? Because everyone has a reason to enter and exit the market. Everyone has got some reason. The technical analyst may look for a chart pattern to signal a movement or a moving average. The price action trader may look for a price pattern. The forex robot may look to his algorithms to tell him when to enter and exit. The fundamental analyst may look at the fundamentals of a company or country. The astrologer looks for astrological patterns. Even the person throwing darts on the wall covered with stock symbols has some method.
When you buy or sell something you always have a reason. Now some people have strange reasons for making buying and selling decisions, but that doesn’t mean that they don’t attempt to rationalize it. Everyone’s got a reason. Most people don’t have reasons rooted in order flow though.
When Ben Stein advocated to buy index funds in July 2008, before the financial crisis, he had plenty of reasons to try to rationalize his purchases. He says you can’t time the market, but he obviously thought that he was buying value. Otherwise why else would you buy? If you don’t think you are buying on the cheap for a financial asset, why else would you buy? And if you think you are buying value, there is always a reason attached to it.
Everyone tries to time the market, and I mean everyone. Even Warren Buffett tries to time the market, even though he may say that he doesn’t. When Warren Buffet sold his stake in Petrochina in October of 2007, he had a reason for doing so. He believed the stock wasn’t going to go higher, so he sold. If he thought that the stock was going to go higher, then he would have kept it. That reason is rooted in his belief that the market was overvalued according to whatever valuation tools and techniques he uses.
Everyone has valuation and timing tools. Some stink, while others are rooted in order flow.
Yes you can time the market with knowledge of order flow, global macro, market sentiment, market sensitivity. You won’t always be able to get the top tick or the bottom tick, but you don’t have to.
That is one of the falsehoods behind market timing. They assume that you need to buy the bottom tick, or sell the top tick. You don’t have to. If you can get into the market during the end of a consolidation phase, and get in one day before the market breaks out, that is a form of market timing.
The whole point is to get better prices than the whole “buy and hold, invest for the long term” crowd. The whole point is to get a far more attractive risk to reward ratio than the people who just blindly plunge into the market.
Because the people who claim they aren’t engaging in market timing actually are. They are just willing to hold through extremely large draw downs some of the time, which means their risk reward ratio is horrible. Learn better timing tools, rooted in order flow and take their money.
Always remember that everyone has a reason for entering the market. Doesn’t mean the reason will turn out to be true or move the market, but everyone tries to time the market. All the other people are lying like dogs.