There’s a lot of literature on the futility of stock timing. I agree. Most investors will not succeed in this endeavor.
It takes a lot of study and experience to time the market well. But once you acquire this knowledge, you will have a big advantage over those who don’t.
Beware of the naysayers. Just because they can’t do it, they tell the world it cannot be done.
Here are a couple of tools that I use for stock timing.
I use stock trends to determine the type of market I am in. Why trends?
Because once established, trends tend to continue in that direction, whether up, down or sideways.
I also use price patterns to determine the optimal time to buy or to sell a stock. These patterns seem to repeat themselves every market cycle.
The optimal time is not necessary to buy at the bottom or sell at the top.
The optimal time for me to buy or sell is when the odds are in my favor.
I use the word ‘optimal’ to emphasize the difficulty of buying at the bottom and selling at the top consistently. It’s not impossible but I have not come across such a person in my life yet.
The origin of this investment myth came from the fund management industry many years ago.
Because of a few managers’ inability to time their entry and exit due to their size, it was concluded that they should be fully invested regardless of market conditions.¹
This policy worked out for them and that grew into the myth that you can’t time the market.
One difference between an individual investor and a fund manager is capital size. For an individual with a capital of a few thousand to a few hundred thousand, the capital is easily absorbed by the stock market.
For the fund managers who have millions or even billions under their charge, to deploy all the capital without influencing the stock prices could take weeks or even months for them to buy their predetermined quantity.
As an individual investor, you should make use of your biggest advantage: flexibility to enter and exit the stock market at short notice.
1. William J. O'Neil, How to Make Money in Stocks, McGraw Hill 3rd Edition, Pg 49