While the odds might be stacked against you to make serious money by market timing, you can make money. In this post, I will walk you through how to time the market and make money in the stock market.
The original article has been edited here by munKNEE.com for length (…) and clarity ([ ])
What Is Market Timing?
…Market timing is moving in and out of the market by using technical analysis. This could mean:
- you study charts of certain companies and make investment decisions based on the movement of the stock
- or it could mean you look at economics, like housing starts, consumer spending, or gross domestic product to make your investment decisions.
Whatever method you choose isn’t important. What is important is that you are constantly moving in and out of the market, trying to earn a profit.
Can You Time The Market?
Now…let’s look at a few of the reasons why experts say it cannot be done successfully…
- Time: the average investor doesn’t have the skill or the time to commit to timing the market. As a result, the odds of successfully doing this over the long term are slim…
- Trading Costs: It costs money to constantly be buying and selling securities. These costs eat away at any gains you may earn. The result is a smaller gain than you hoped for or a loss when trading costs are factored in.
- Taxes: When you make short term gains, you pay a high tax rate. As with trading costs, taxes eat away at your gains and end up costing you money.
- Opportunity Cost: Most long term investors make the majority of their gains over a few short days when the market performs exceptionally well. If you miss these days because you are out of the market, it can cost you a lot of money. This is known as opportunity cost.
After reading this, you may be wondering if you really can make money by timing the market. You can, you just have to have the right strategy.
How To Time The Market
The way to successful market timing is simple. You don’t need to study charts or burn the midnight oil going over economic data. You just have to pay attention to what the market is doing.
Here is why most investors fail at market timing: they buy and sell at the wrong time. Most investors let their emotions take over. They get greedy when the market froths up and they sell when there is blood in the streets…Simply wait for the market to drop, buy stocks or mutual funds, and then wait for the market to rise and sell. Guaranteed profits.
Now you won’t know when the bottom will be or when the top will be but you can get a general idea and doing this will lead to lots of money earned in the stock market.
Overall, market timing gets a bad rap. Most experts tell the average investor they cannot time the market to make money. This is untrue. If you do the opposite of what everyone else does and sell high and buy low, you will make money over the long term.
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