What is Market Timing?
Market timing is any attempt to use past prices and other market-generated
data to accurately forecast or prophesy future prices of securities or indexes,
whether long-term or intra-day, consistently and persistently. It is based
on various economic or stock market indicators, for deciding when to buy
or sell securities. Other words Market timing recommendations are based
on a Technical analysis of market data.
Timing Includes asset allocation, technical analysis, charting, momentum
investing, and quantitative analysis using neural networks, genetic algorithms,
artificial intelligence (AI), fuzzy logic, chaos theory or other non-linear
techniques. Precisely because market prices are efficient integrators and
anticipators of information relevant to security valuation, they also serve
as high-quality inputs for reliable market timing models.
"Market timing has shown itself to be futile in every study ever conducted.
The idea of market timing and the reality are night and day. The idea is
very compelling. It presupposes you can be on the sidelines when the market
goes down and in when it goes up. If you could do that you'd be richer than
Warren Buffett. The reality is it leaves most people in the market when
it's going down and not in when it's going up."
Forecasting asset prices is a problem that has fascinated investors since
the very advent of financial markets. Accurate predictions of the market
movements imply fast and substantial capital gains. Attempts to forecast
stock prices are numerous.
Timing strategy provides investors with the opportunity to avoid
major market price declines at the same time many argue that using any market-timing
tool is a waste of time.
Every investor has his own market timing theory when it comes to making
money in the stock market. Many technicians attempt to improve their performance
by timing the market and adjusting their portfolio according to predictions
about the market or specific sectors. Obviously, if investors can avoid
weak periods in the market and participate in the strong, they can also
experience superior returns over a buy-and-hold strategy. What is surprising
is that studies show that investors can still outperform a buy-and-hold
strategy, even if they don't participate in the strongest times - as long
as they escape major market declines.
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