They Say - You Cannot Time The Stock Market - Part 2

They Say - You Cannot Time The Stock Market - Part 2

Not many folks are adept at making money at investing in the stock market. Some people have a stock market trading system built into their psyche, but they are extraordinary. However, most of us mortals, don't have this instinct. Most of us flounder and make some money here and there and then lose a large amount of money on one or two trades.Investing is counter-intuitiveYou cannot win at trading the stock market, based on your emotions. That is how most human beings trade. The professional traders know that you are trading emotionally, and they take advantage of that fact. Trust me, they aren't trading emotionally.So what is the average feller, with retirement coming up soon, supposed to do?See previous article that discusses principles #1 & #2: Safety & Diversity, and,Ease of trading.We discuss Principles #3, #4 and #5 in this article.actuallyPrinciple #3: Time the marketI know. You have read many expert articles that imply that you cannot time the stock market. If you have a stock market trading system, you can time the market.You need something basic like: The market is bullish. Or, the market is bearish. Or, who knows? Get out of the market until it trends, again. You have to be on the right side of the market. Never short a bulish market. Never go long a market that is crumbling. These principles appear to be so simple, who would ever violate these rules? Many people do. I know I have.The trick is getting in on a trend. You don't care whether it is an up-trend or a down-trend You have to catch the trend.Will you get into the trend at the very kickoff of the trend? Probably not. But you will get in timely enough to get a good portion of it. Will you get out before the trend changing direction? Probably not. But, you won't be holding, and hoping, as most or all of your gains dissolve into some professional trader's checking account.When the stock market is consolidating. Sell your positions and watch - this is very bothersome for some investors, by the way. Many people are so eager to make money, that they think that they have to be in the market nearly all or all of the time. They over-trade, and get a little haircut here and a little buzz cut there, as the market moves back and forth. In a short time, if they do this for a period of time, they end up bald.Does a good stock market timing system get it right all the time? I have never seen one. But there are several satisfactory stock market trading systems available that make more money than the average person can make.If you are capable to get the timing services trade dates, you will look at them and think, "Well, I could have done better than that." In fact, you most likely couldn't - or you wouldn't be reading this article. You might consider the trades and think, why didn't they get in there? See the market was trending up. They could have made a great deal more money if they had entered the trade earlier. If you think like that, you are suffering from 20-20 disease. Or, perhaps, you should be loaning out your time machine, or crystal ball instead of investing in the stock market.Principle #4: Some strategies just don't work.Timing services are not dead-on. Let's admit that fact. In fact, gurus have stipulated that "buy and hold" is the method to invest. Well, let's look at the last 10-years. You would have lost about 28% if you bought and held. If you had purchased almost any mutual fund, you most likely would have lost almost as much. Check out several of our other articles that examine these facts.Perhaps you should merely "dollar-cost-average". That means you buy a fixed dollar amount of stock every month, or every year whether the market is going up or down. That hasn't worked in the last 10-years either.How about somehow finding a stock that is going up and keep buying more shares of it as it advances. Trust me, that doesn't work either. Does GM bring memories back? Does Novell or Cisco do anything for you?Ok then. What about following the maket experts? They are TV every day. There are countless investing blogs. There are services, I won't mention any names, that announce crumby, low volume, stocks to buy. If they have myriad of followers buying, the stock, that stock will go up. Then, of course, they sell before you do. You are left holding the bag.I've got it. Buy a stock that is depressed and is at the bottom and ride it back up. If you have been investing for a while, you will have learned this lesson, too The problem is this. Where's the bottom. Stocks routinely go down further than the charts would indicate. They can exceed support and go down in impressive, gut wrenching strides. If you buy at what you think is the bottom, you might find that you are now a "long-term investor". You convince yourself that If you hold it long enough, the stock will have to come back up - sometimes it doesn't come back up.Principle #5: Money Management StrategiesIsn't that what the old Merrill, Lynch, Pierce, Fenner and Snit, advertised as their accounts - money management accounts. I had one of those. That's not what we're talking about now. If we are going to have a stock market trading and timing system, we need to exercise money management.We have to by some means know when to "take the money and run"! We cannot go into all the specifics in this article, but to give you the simple principle, you have to take profits as the stock, or broad-based index is moving in your direction. When you have the right amount of profits, which is defined by the money management system, then, you should harvest them. Sell your holdings and put the money into your account, before the market reverses its direction and takes your profits away.If you do follow a defined, tested, money management systematic process, you will discover that you don't have to suffer as much draw-down. Draw-down is defined as the amount you are willing to lose from where you got on board, before the investment goes back into the positive direction - or, in many cases, you discontinue the trade. However, if you take the gains when the trend is very likely to end, you improve your account balance.In summary: You need to gain security by diversification. You have to have an easy to follow stock market trading system that doesn't take much of your time. You have to have a way of knowing whether the market is bullish, bearish, or should you sell and be out of the market for a while. You need to know when and how to take profits as they present themselves. And, finally, you need to know doesn't work.