Why trying to time the market is a mug’s game

Julie Brownlee, Fsp Invest, 07 Nov. 2014

Tags: stock market, market timing, time the market, market extremes, investing

Market timing involves trying to jump in and out the stock market to coincide with rallies and corrections.

The fear of losing money on the stock market leads many investors to try to do this, but it’s a sure-fired way of losing money.

The sharp moves in the stock market are not logical. They defy the best of investors and traders.

Here’s why you should avoid trying to time the market…

It’s impossible to consistently time the market

Yes some investors call the market’s move right. But it is impossible to do this consistently over time. There’s no possible way that someone can anticipate the market’s next move.

Every day, thousands of investors and traders look at a whole host of economic data, company-specific data and a number of other factors. Only then do they think about investing money in the stock market.

Some stock market pundits might say the market’s going to rally or the market’s going to crash, but the fact is, they don’t know any more than anyone else.

When fear strikes into investors and traders, then emotion is driving the stock market’s moves, not reason.

Be wary of stock market extremes

Yet one thing you should watch out for are extremes, Alexander Green in Investment U explains.

For instance, if you see extreme valuations coinciding with extreme sentiment. This can highlight the highs and lows of the market. In other words indicate the onset of a rally or a crash.

But at the moment, there aren’t any extreme valuations or sentiment about.

Of course, as no-one can time the market, this highlights why it’s so important to manage your risks. One of the best ways to do this is to use trailing stop losses on your investments. Trailing stops will help to protect your capital and profits.

And don’t put all your eggs in one basket. Make sure you have other investments outside the stock market.

So there you have it, why trying to time the market is a mug’s game.

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