Following the appropriate market timing strategy helps investors to enter and exit the market at opportune moments. By competently identifying periods of overvaluation or undervaluation, investors can enhance their overall portfolio performance. Kavan Choksi Business Consultant mentions that successful market timing could result in higher profits than a passive buy-and-hold strategy, especially during volatile market conditions.
Kavan Choksi Business Consultant marks a few market timing tips important for investors
It is a widely held belief that market timing and investing are mutually exclusive. These two strategies can essentially work well together in delivering solid returns over a number of years. This effort requires a step back from the typical buy-and-hold mindset that characterizes modern investing, and adds certain technical principles that assist position management, entry timings and early profit taking.
Here are a few pointers associated with market timing that investors must pay heed to:
- Watch the calendar: Financial markets grind through annual cycles that favored varied strategies at specific times of the year. For instance, small caps show relative strength in the first quarter, which usually evaporates into the fourth quarter. Meanwhile, technology stocks generally perform well from January into early summer and end up languishing until November or December. Both of these cycles follow the market adage to “sell in May and go away,” which is a strategy based on the historical underperformance of stocks in the 6 months starting in May and lasting through the month of October versus the November to April period.
- Ranges that set up new trends: The market usually trends higher or lower about 25% of the time in all holding periods, and then gets stuck in sideways trading ranges the other 75% of the time. A review of the monthly price pattern can help in determining how the prospect investment is lining up along this trend range axis.
- Buy near support levels: Rather than making decisions based on emotions after an earnings report, investors must use it as a catalyst to initiate a positive position without looking at current price in relation to monthly support and resistance levels. The most advantageous entries come when purchasing equity that has broken out to an all-time high or is coming off a deep base on a high volume.
- Build bottom-fishing skills: Investors often benefit by building positions that have fallen fast and hard but show characteristics of bottoming out. This is a logical strategy that helps in establishing preferred average entry and capitulation prices. In case the floor breaks, the investors should take steps to execute an exit plan that disposes of the entire position at or above the capitulation price.
- Identify correlated markets: The modern market environment is characterized by algorithmic cross-control between equities, bonds, and currencies. As seemingly unrelated positions might be sitting in the same macro-basket, and getting bought and sold together, the portfolio is exposed to elevated risk. This risk can be mitigated by coupling each position with an ETF or related index, while performing two studies at least once a month or quarter.
Kavan Choksi Business Consultant points out that marketing timing rules that make use of classic technical analysis usually benefit investments and other long-term positions by identifying the best prices and times to take exposure in order to book profits.