Archives of “market timing” tag

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How hard is it to time the Market?

  
  Education
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As a simplified illustration of how hard it is to time the market, assume that you are 70% accurate calling market turns. If you are in the market, two calls are required: a sell and a subsequent buy. The probability of being correct (buying back in at a lower price than your selling price) is 70% times 70%, or 49%. That shows you have to be very good (and most people are not much better than a coin toss) to be successful at market timing.

Trading – a game of probability

  
  Education
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A big part of trading is a probability game. The market can move any directions and many times against all logic and fundamentals for a period of time. 
An edge in trading is the ability to have winning probabilities on your side.
Most people cannot distinguish between luck and skill when it comes to forecasting the market. At the best, I am right 70% of the time on fundamentals, 50% on the timing of the trade but I am making money on >80% of the trades.
I acknowledge I do not know how to predict the market timing with certainty. The process of trading is replete with errors and thus one has to cater for it.
Apparent randomness in the market is so complex that it cannot be managed with my finite mind. 
So here are some ways that help me to handle the random behaviour of the market: (more…)

Links for you

  
Education, LINKS
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linksforu

  • Goodbye, yellow brick road! (Doug Kass)

  • Could we have less talk about gloom and about doom in 2010? (Money)

     Most people stink at market timing. Investors pull money out of stock funds (MarketWatch)

  • The Housing Crisis and Wall Street Shame (Robert Reich)

  • Are we coming out of recession? (Market Talk)

  • Get ready for half a recovery (New York Times)


  • One in six companies on the Standard & Poor’s 500 index may raise its next dividend payment (Bloomberg)

    • I’m always suspicious about the market [but that doesn’t mean I don’t find opportunities] (Jutia)

  • Dangers of an overheated China (New York Times)

  • Brazil GDP to Grow 6.1% in 2010 (Bloomberg)

  • 15 european banks now have assets larger than their domestic economies (Fund My Mutual Fund)

  • Correlation between the world’s tallest buildings and economic downturns (AlphaDinar)

  • Need a reminder? (Memorari)

  • RIP Mark Pittman (Bloomberg)

  • Life of a blogger (Slope Of Hope)

    • Links For Traders

      
    Education, LINKS
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    Chain Links

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    The Truth: A Two-Edged Sword

      
      Education
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    The truth is, almost everything about superior investing is a two-edged sword:

    -If you invest, you will lose money if the market declines.
    -If you don’t invest, you will miss out on gains if the market rises.

    -Market timing will add value if it can be done right.
    -Buy-and-hold will produce better results if timing can’t be done right.

    -Aggressiveness will help when the market rises but hurt when it falls.
    -Defensiveness will help when the market falls but hurt when it rises.

    -If you concentrate your portfolio, your mistakes will kill you.
    -If you diversify, the payoff from your successes will be diminished.

    -If you employ leverage, your successes will be magnified.
    -If you employ leverage, your mistakes will be magnified.

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