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Better Market Timing Increases Profit Potential

 Trading the markets, whether it be the Stocks, Futures or FOREX, provides the opportunity to make profits by taking a position in the correction direction.

 
The idea is to buy low and sell high, either in that order or in reverse order (sell high, then buy it back low).
 
There are different time-frames in which one can trade from. You can day trade, where you only hold your position for a matter of minutes, perhaps hours, but rarely overnight. You can position trade, where you may hold positions for one or more days. Or you can be a longer-term trader, holding your positions for weeks or months.
 
The time frame one chooses to trade has a strong correlation to the degree of risk the trader is willing to be exposed to. For example, a day trader who only wants to capture quick short-term moves within the day will only want to risk a very small amount per trade, since this type of trader is only looking to capture small profit moves. The position trader who holds a position for a day to a few days may allow a little more risk exposure, since more profit is being expected. The same goes for long-term traders that hold a position for several weeks. With a much larger profit objective, this type of trader usually has a wider protective stop-loss for a higher risk exposure, in order to not get stopped out too early by the market's normal swing behavior.
 
While the time-frame one chooses to trade has a direct correlation to profit potential and risk exposure, so does Market Timing methods.
 
Consider the following example of a position trader:
 
The position trader is looking to catch a new move usually based on the daily chart. This trader believes that the market will likely move higher real soon and has the potential to rise for several days. The market timing method used by this trader often sees the market already two or three days into the move before getting the signal to enter. Because of this, the trader usually will put the initial protective stop just below the start of the new move. Due to the lagging nature of the timing indicators used, that can be a substantial risk exposure and would require a profit objective that exceeds the risk based on the winning ratio of the method used. In other words, if the timing method has an accuracy of 50% of producing good timing, the profit objective needs to be greater than the risk exposure to come out ahead over time. Yet, the more lag in the market timing approach, the lower the percentage of catching good trades enough profit to more than cover the risk exposure. Even a timing method that had a lot of lead time would expose the trader to higher risk because the market would still be moving against your position for a period of time before it turned as anticipate by the lead indicator (if it turns, that is).
 
Now consider what would happen if you had a timing method that had very little lead or lag time. The trader, having confidence in the timing method being very tight (the turn occurs soon of the signal), would not have to put on a large stop-loss because the turn is expected to occur right away. This drastically lowers risk exposure. In addition, this would increase the profit potential because the trader can now get into the trade as soon as the turn is occuring rather than waiting for late signal where the move is two or more days already in progress.
 
It should be clear by these two examples how important Market Timing really is. While it is true that you should have good money and risk management, the ability to act on your signals when you get them, Market Timing makes all these other things much better. Better Market Timing means higher confidence, which goes well toward trader psychology. It lowers risk, making risk and money management better. It allows for the potential to catch more of the move, which goes toward greater profit opportunties.
 
As a professional Market Analyst for two decades now, I've seen all sorts of different Market Timing methods. There are many approaches to Market Timing, and I personally have a lot of respect for a number of tools used for this purpose.
 

 


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When it comes to indicators, I have found that the oscillator types such as the Stochastic and MACD provide useful insight into the ebb and flow of price action. You may catch a few moves as soon as they start, but you will also be too early or late on many as well. Use them to get a good handle on DIRECTION and DURATION. Moving averages help in getting an overall feel for trend, but they lag and in my opinion are not precise enough for precision market timing. What I have found to be best for Market Timing, and should be used in conjunction with oscillators for DIRECTION, are what I call "turn dates". You can calculate basic turn dates using Fibonacci ratios, or you can do so using Gann counts. There are several methods that the trader can employ for anticipating the day that a bottom or top will occur. Once you find an approach that has a high degree of accuracy based on your own testing of it, you are well on your way to trading with LESS RISK and HIGHER PROFIT POTENTIAL than if you just rely on leading and lagging indicators, chart patterns, or simple support/resistance calculations.
 
Of course, FDates Market Timing produces turn dates with a high degree of accuracy that allows traders to put on trades with lower risk and higher profit potential.

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