Market Timing and Market Forecast

A few decades ago, it was widely believed that the most effective way to analyze the markets for trade was to determine the fundamentals, such as the number of bushels in storage, current demand numbers, expected crop yield, etc. Many assumed that Technical Analysis was not useful. The reasons given were that the price action is random or ignores the fundamental factors of the underlying asset. The facts are quite the opposite.

Many have realized that the old ‘buy and hold’ strategy can be costly. Stories abound from those who have discovered that the value of their portfolio has only broken even (or lost value) after holding it for several years. The 2008 financial crisis highlights one of several historical periods in which investors have lost millions. While it’s always a good idea to know the financial health of a business, as well as its future sales/profit potential, what may be a healthy financial statement and outlook today may look very different tomorrow.

Technical analysis focuses on price movement, anticipating the direction of the price based on its ebbs and flows (ie swings, cycles, etc.). The fundamentals of any asset are built into the price action, as the market discounts everything. Also, history tends to repeat itself and this repetitive nature of price action can be anticipated and taken advantage of.

Many technicians rely on various indicators that help expose some aspect of historical price data for use over time. Where one indicator might highlight some underlying cycle pattern that could help anticipate the next period of trend reversal, another indicator might highlight an overbought or oversold condition of the market, all relative to prior price action.

The technical analyst relies heavily on price charts. Certain patterns often repeat themselves and give the technician a heads up of a potential price breakout. Such patterns are given names, such as the ‘Head and Shoulders’ pattern, the ‘wedge’ or ‘flag’ formation, etc. All of these technical approaches are useful to some extent.

Accurate market timing is crucial in today’s volatile markets. Without greater timing precision, the trader is exposed to a higher degree of risk and may leave more profit on the table.

Let me illustrate this.

For the sake of discussion, assume that the price range for each trading day is 50 pips. If your allowed risk exposure (how far you will allow the market to move against your position) is 50 pips, you should enter the market on the exact day you expect it to start moving in your favor to avoid being stopped out with a loss. If your allowed risk exposure is 100 points, you need to be accurate in your timing to within +/- a day to avoid being stopped at a loss. This highlights the importance of accurate market timing.

Now, in the real world, each day the price range varies from the next. Depending on how effective your market timing approach is, you may be able to risk less than the average range in points. The less accurate your market timing approach is, the more you should initially risk on the trade.

While market timing itself can be done freely using standard technical indicators, trend lines, and moving averages, accurate market timing can be achieved with good market forecasting methods. Market forecasting for market timing purposes is extremely effective because, unlike most technical indicators which are ‘leading’ or ‘lagging’ in nature, a good market forecasting method can forecast a market turn in an exact day of a trend change. Giving any market forecasting method a small deviation of +/- a day can give any trader an incredible advantage in predicting market turns in order to accurately time and trade the market.

Some traders are historical legends who have used market forecasting methods for precision market timing purposes. Who has not heard of William Delbert Gann (better known as WD Gann)? This financial trader is famous for developing various technical approaches such as the use of Gann angles or the trend indicator. His forecasting methods included the use of the Square of Nine, cycle analysis, and market geometry. Using “market forecast” tools such as these and others, he is said to have many times turned a small amount of money into a large amount rather quickly.

So there are two main points that I hope you got from reading this article. Point #1 is that to better manage your risk exposure and maximize your profit potential, you need to be more precise with your market timing approach. Point #2 is that the most accurate way to time the markets is to take advantage of market forecasting techniques, where you can often time your trades to the exact day of a new move.

There are many market forecasting secrets, methods and techniques that you can learn right now to improve your market timing. Some are good, others not so good. I have spent over three decades learning, testing, and discovering market forecasting approaches. When I started, there wasn’t as much available as there is today. So it has definitely seen some growth over the years, and therefore you should have no problem finding the approaches that suit your trading and investing style.