Market timing is an investment approach where investors try to predict the direction of the market, but it is difficult to achieve consistent success due to subjective and emotional investment decisions. Technical analysis tools, such as charting, are popular for market timing, but there is little consensus on their effectiveness. Most investment advisers dismiss market timing as wishful thinking.
Market timing is an investment approach in which the investor tries to “time” or predict the direction of the market. At market timing, investors make their investments based on the expectation that the market will move in the direction required to earn the expected profit, rather than on information about the stock or company. Many investors think they can “time” the market, but few are actually successful. A large part of the reason for this lack of success is that investing in market times is very subjective. Therefore, it is difficult to remove emotional issues from investment decisions.
There are some common market timing axioms that have some basis in reality. “Buy in November and sell in April” is perhaps the most common. It has been observed that stock prices frequently trend downward during the summer months, and this axiom refers to that trend. Another axiom of market timing is that stock prices tend to go up during presidential election years and down in the years after a presidential election. There are many more time-to-market axioms, and while many have some basis in reality, they are also too vague for an investor to achieve consistent success by following its advice.
Most of the investors at the moment of the market use technical analysis to make their investment decisions. There are many different types of technical analysis tools available, with the most popular being charting tools of various types. Market momentum investors believe that investment behavior is predictable and that by looking at past patterns, future patterns can be profitably predicted.
This is the holy grail of the market timing investor, to gain profit from correctly predicting the direction of the market based on observations of past events. Much research effort has been put into models to provide reliable time-to-market data, but to date, there is little consensus as to their effectiveness. Most investment advisers still dismiss market timing as simply wishful thinking.
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