Contrary to popular belief, investing and market timing can work together to yield positive returns over the long term. To achieve this, you must abandon the “buy and hold” approach that characterises much modern investing.
Incorporate technical ideas that aid in determining when to enter a trade, how to manage your position best, and when to cut your losses and cash out.
Study long-term trends
Looking back, the last year of each bull market was Bush Sr.’s, Clinton’s, and Reagan’s eighth year in office. The Obama/Trump bull market has been very robust since 2009.
Understanding these patterns and trends from the past can mean the difference between making more money and losing out on opportunities.
Interest rate fluctuations, the business cycle, and currency valuation shifts are all instances of long-term market forces with similar characteristics.
Verify the timelines
The financial markets are likewise subject to yearly cycles. There are optimal times of year for specific strategies. Small caps, for instance, tend to do well in the first quarter but deteriorate by year’s end.
Many believe that now is the time when thoughts return to the New Year. However, technology stocks tend to perform well from the beginning of the year through the summer and then poorly from the beginning of the autumn through the end.
Invest close to the levels of support
One of the worst things a trader can do after receiving an earnings report is to act impulsively without first checking the price’s relationship to the monthly support and resistance levels.
Those are the finest opportunities to purchase when a stock breaks out to a new all-time high or reverses off a deep base on colossal volume.
Master the art of bottom fishing
Traders quickly learn not to average down or try to catch falling knives. Even yet, the best opportunities for profit lie in purchasing holdings that have dropped precipitously but are showing symptoms of being near the bottom.
The strategy involves buying tranches near the “magic number”. The instrument experiences a “basing pattern,” with average recommended entry and exit prices determined beforehand.
If the floor gives way, you must have a strategy to liquidate your entire investment at the capitulation price or higher.
Find correlated markets
Algorithms that operate across stock, bond, and currency markets now dominate the modern market. Massive strategies enter and exit interdependent markets daily, weekly, and monthly.
This increases the portfolio’s risk, as seemingly unrelated equities may belong in the same macro-basket and be traded as a unit. Thus, this high correlation can destroy annual returns when a “black swan” event occurs.
If you do two studies once a month or every three months and back each position up with a linked index or ETF, you can lower your risk exposure. Start by contrasting the position’s results to those of a related market.
Invest wisely by looking for signals of strength. Second, evaluate the power of the groupings you’ve decided to own by comparing them to other related marketplaces. You know you’re succeeding in the market when both studies find you come out on top.
Bottom line
Investments and other long-term positions can benefit from the ideal periods to buy exposure, as determined by market timing principles based on classic fundamental analysis. These ageless principles can also safeguard existing holdings by raising red flags whenever there is a material shift in market conditions.
