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To buy and hold stocks for the long-term has been the preferred approach to stock market investing for many decades. However, in a volatile stock market this approach can be very expensive in terms of risk vs. return on investment. The long-term holder may not be taking the wisest course after all.
In a volatile market, technical signals tend to precede announcements of change in the fundamentals of a company. Understand how this works and how to use both the technical and the fundamental in your buy and sell decisions.
As practiced by professionals, "market timing" is about buying and selling in accordance with a predetermined set of conditions and rules. It is about following the buy signals and the sell signals. It is not about investing according to how one "feels" about the market, and it is not about the illegal activities of some mutual fund managers that the media has referred to as "market timing."
Wherever the stop loss is placed, there is the chance that the stock will reverse course after the stop loss is triggered. We wondered if there was an optimum stop loss placement that would minimize both the loss allowed by the stop loss and the probability of a reversal after the sale.
Some of the most respected names in the investment world (Granville, Weinstein, Dines, Magee, Zweig, Sperandeo, Schwager, O'Neil, Murphy, and others all agree on the necessity of using stop losses. Though they do not seem to agree on how much of a stock decline to allow before selling, they are much closer in their thinking than is apparent on the surface.
Is there a legal form of market timing? How does it differ from illegal market timing? The market does indicate what it wants to do. People who align their market decisions with the indicated biases of the market are much more likely to trade or invest profitably.
During the transition from bear market to bull market, individual stocks are often quite choppy in their price action. Though the market is steadily rising, individual stocks keep breaking down with disconcerting frequency. Investors and traders might consider these alternatives to leaving their money in cash.
