What Is Market Timing?

By TROY SEGAL

Updated Apr 10, 2019

Market timing is a type of investment or trading strategy. It is the act of moving in and out of a financial market or switching between asset classes based on predictive methods. These predictive tools include the following technical indicators or economic data to gauge how the market is going to move.

Many investors, academics, and financial professionals believe it is impossible to time the market. Other investors, notably active traders, believe strongly in it. Thus, whether market timing is possible is a matter of opinion. What can be said with certainty is it is very difficult to time the market consistently over the long run successfully.

Market timing is the opposite of a buy-and-hold investment strategy.

Does Market Timing Work?

By R. JEFF GREEN

March 1, 2020

I would have to admit that I have done it a few times. But the odds are not with you. Emotion grabs hold of the investor, and either fear or greed will not match up with logic and reasoning. So, when do you get out? And, when do you get back in?

For many, this is a struggle, because it is counter-intuitive:

• “The market is doing great, why would I sell now. There is much more to gain on this upward swing."
• “The market has just crashed, and I fear it will get worse, so I better get out while I still have something to invest."

If you look at mountain charts, you see there is up and down movement all day long. Sometimes more intense one way or another. By the time you know what has happened, it's too late. How do you know during the middle of a trading day to make a move? It becomes more of a guess than anything else. Market timing is almost impossible to do consistently.

I remember a TV business channel pundit during the 2008-2009 crash told everyone that "Nothing makes sense and we are headed for a full-scale depression." Fear kicked in for many, and they sold out and went to cash or annuities. They sat there on the sidelines as the market took off like never before. Finally, when the market recovered (by the way it did not take that long), they got back in. So, what was the result? They sold Low and bought High. This is the exact opposite of what an investor should do. Yes, once in a while, you might get lucky, but long-term, you are better to buy and hold than trying to time the market.

Don't Do it! Eliminate Market timing from your investment strategy.