People have long believed that market timing and investment are mutually exclusive, but these two strategies can work well together and produce considerable returns over many years. This work requires taking a step back from the characteristic buy-and-hold thinking of modern investment, and adding technical principles that facilitate entry timing, position management, and early profit-taking when needed.
Study long-term cycles
Looking back, you will notice that the bull market ended in the sixth year of the Reagan administration and the eighth year of the Clinton and Bush administrations. Since 2009, the Obama/Trump bull market has been going strong. These historical analogies and cycles can mean the difference between high returns and lost opportunities. Similar long-term market forces include interest rate fluctuations, nominal economic cycles, and currency trends.
Look at the calendar
Financial markets will also sharpen during certain periods of the year during the annual cycle that supports different strategies. For example, small-cap stocks showed relative strength in the first quarter, but tend to evaporate in the fourth quarter. Many people think this is a time of year when speculation about the new year rekindles interest. At the same time, technology stocks tend to perform well from January to early summer, and then weaken until November or December.
Both cycles roughly follow the market motto “sell and leave in May,” which is based on the historical underperformance of stocks starting in May and continuing through October and November to April for six months.
Scope for establishing new trends
During all holding periods, the market tends to show an upward or downward trend approximately 25% of the time, while the other 75% of the time is trapped in a sideways trading range. A quick review of monthly price patterns will determine how future investments will be arranged along this trend range axis. These price dynamics follow the old market wisdom, that is, “the greater the volatility, the wider the base.”
If you try to enter and exit transactions in a timely manner to maximize your profits, you will need to rely on various indicators and tools to increase your chances of success.A good starting point is technical analysis Course in Investment Encyclopedia Academy, Which includes interactive content and real examples to help you improve your trading skills.
Buy near the support level
The worst thing an investor can do is to get emotional after the earnings report and use it as a catalyst to initiate a position without first looking at the current prices associated with monthly support and resistance levels. The most favorable time to enter the market is to buy stocks that have broken through all-time highs or have fallen sharply due to high volume.
The iShares Russell 2000 (IWM) exchange-traded fund (ETF) broke through the two-year trading range in 2012, rose 45 points in 16 months, and then fell back to a new range that lasted for 16 months. A new upward trend. Investors were bullish in the first half of the 2014 range and bearish in the second half, although buying the most negative sentiment at the bottom of the range provided the most profitable entry.
Develop bottom fishing skills
Traders are taught not to drop evenly or grab a falling knife. Nonetheless, investors benefit when they establish positions that have fallen rapidly but exhibit the characteristics of a bottoming out. This is a logical strategy that establishes the preferred average entry price and surrender price, buying batches around magic numbers while the tool is operating through the basic mode. If the bottom line breaks, execute the exit plan and dispose of the entire position at or above the surrender price.
Apple Inc.’s (AAPL) stock price closed at $100 after a strong rebound and a sharp correction. Potential investors can pull out a Fibonacci grid that spans a four-year trend and determine the level of harmonics that may attract strong buying interest. When the decline reached the 38.6% retracement of $66, the clearly marked retracement supported the first batch of buying new positions.
The decline continued to the 50% level at $56, while the monthly stochastic indicator broke through the oversold level for the first time since 2009, and the price stabilized at the 50-month exponential moving average (EMA), which is a classic long-term support level. Before the uptrend hit a record high in 2014, investors still have four months to establish positions on a constantly changing basis.
Identify the relevant market
The algorithmic cross-control between stocks, bonds, and currencies defines the modern market environment, with a large number of rotation strategies for entering and leaving relevant departments every day, every week, and every month. This puts the portfolio at higher risk, because seemingly unrelated positions may be in the same macro basket and bought and sold together. When the “black swan” event occurs, this high degree of correlation will destroy the annual return.
This risk is reduced by combining each position with the relevant index or ETF and conducting research at least twice a month or quarter. First, compare the relative performance between the position and the relevant market, and look for the advantages of determining a sound investment. Second, compare relevant markets with each other to find the relative advantages of the groups you choose to own. When both studies point to market leadership, you will go all out.
Hold until sell
In the passive approach, regardless of economic, political, and environmental conditions, investors stand idly by and believe in statistics that are conducive to long-term profitability. What these numbers don’t tell you is that they are calculated using indexes that may not be related to your risk exposure. Just ask the shareholders who bought the coal industry during President Obama’s tenure. Therefore, it makes sense for investors to determine the capitulation price of each position.
Your profitable investments may also require exit strategies, even though you initially plan to hold them for life. Considering a multi-year position, it finally reached an all-time high of 5 to 20 years. These high price levels signal strong resistance that can reverse the market and push it down for many years-so it makes sense to profit and use cash for more effective long-term opportunities.
Use the market timing rules of classic technical analysis to book profits by finding the best price and time for risk exposure, thereby benefiting investments and other long-term positions. In addition, these timeless concepts can protect active investments by sending red flags when potential market conditions change significantly.