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.
Timingstrategy 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.
Very often market timing sounds fine in theory but it
seldom works in practice.
