How To Time The Market — Without Market Timing
Being
on the right side of the market is how investors can consistently
grow capital in good times, and protect capital from being on the wrong side of
the trend. Let me reiterate that I manage
money using two simple methods of allocation: either investing in stocks, or
investing in treasuries (money market). The
best part about what I do is not trying to “time†the market.
This style of investing has worked well for me, and the U.S. stock market
and economy continually offer unprecedented opportunities for growth, with brief
pauses now and again.
Take the following
chart for example, even the dips throughout history don’t take away from the
long-term trend.
Market timing is
often confused with having a sound discipline telling an investor when a stock
should be bought or strict rules on when a stock should be sold.
Naturally, once these rules are in place, there will be times when the
search goes on for stocks to buy because none are fulfilling the entire buy
criteria. Likewise, at the same time
there are no stocks to buy, sell rules have forced the liquidation of recent
holdings and inevitably, the portfolio ends up entirely in cash.:
Here’s
The Checklist I Use Before I Buy Any Stock. I
intend to offer the same structure in terms of a Sell checklist, in order to
sell positions in order to minimize losses and maximize gains.
To recap on where we
left off in the previous lesson, I begin the process with evaluating the overall
health of the market that Mr. William O’Neil has introduced to the investing
public. By gauging the accumulation or
distribution, I solve only one piece of the
investing puzzle. As the market shows
signs of accumulation for a brief period (seven days or less to be exact), I
begin to stalk new stock purchases. A
market-timing model would simply respond to the market and require action.
In my analysis, the market action is only an “all-clear†to buy
stocks that fulfill a regimented list of rules. These
rules include strict
EPS growth guidelines, industry group strength, strength in
the stock’s price performance, strength in the company, etc.
Once stocks have
appreciated in a portfolio, it becomes time to watch them for signs of trouble.
Ninety-nine percent of the time, leading stocks will flash trouble
signs such as new highs on low volume,
climax run, no forward price progress on increasing volume
and so on
This is the time when strict sell rules come into play.
These are the second half of the investment puzzle in order to maximize
the gains in a portfolio. As stocks
flash warning signs that they may be topping, they should be sold.
Likewise, the market flashing signs of distribution should also call for
at least a partial liquidation. So
it comes time to define these “sell rules†so that it becomes a mechanical
process on when it is time to liquidate a position.
Beginning this is
always the hardest part. I believe a gut
feeling is the best thing to use in finding a starting point.
Investors, myself included, know where they run into trouble selling
stocks. I began the process by looking
back at all my past trades and simply pulling up charts on them and spotting the
ideal sell points that would have netted the most profit.
The next step is to look closer at the chart and identify signs of
trouble the stock portrayed
After my
post-analysis and sell-rule statements, I simply went back to charts of winning
stocks and applied the rules. In
effect, this “tested†my rules and allowed me to see that my specific rules
would handle each and every situation allowing me to the best of my
knowledge make
the most amount of money possible on each and every trade.
Once again, I could
have printed my list here, but I feel it is the necessary step for each investor
to create a list for themselves, that fits their investing personality.
I will go on to state the sell signs my list encompasses including the
format I use. A checklist such as
this should also be stated in a way that forces each of us to realize that if 1
criteria has been met, it gets checked and the stock gets sold.
I will start this list off with my Rule #1:
-
7-8%
from actual buy pointNow on to the other
points which a sell list should cover: -
Stock moving up
without volume and a lack of sellers -
Climax Top as stock
will most likely fall hard once this begins -
Heavy volume
without further price progress upward -
After being
purchased, a stock moves much higher, then starts returning to the original
buy point; (this should never turn into a loss!) -
Decelerating
earnings in a company or declining fundamentals -
Market appears to
be under distribution, (most stocks, no matter how great they seem, will
follow the market) -
Stock breaks out of
short base, or is not supported by volume on a breakout
By following simple
rules such as these points, investors will find themselves mechanically
liquidating stocks before the market falls apart.
And as we wade through the recent Bear market, we all know that very few
stocks appear qualified under a buy list. This
is how a portfolio becomes “protected” in a cash position without
trying to “time the market.â€
For more information
and details on compiling the entire money management and investing picture, I
welcome your emails.
Good luck and great
trading!
href=”https://www.tradersgalleria.com/galleria.site/Courses/main/products.cfm?full=1&id=5792″>color=#5a0031>My Complete Methodology For Beating The Market Through
Intermediate-Term Trading