Market Timing

I often talk about “Market Timing” but why is it so important? The main reason you would want to know how to time the markets turning points in advance is to attain the lowest risk, highest reward, and highest probability entry into a position in the market. Think about it, by entering as close to the turn in price as possible, you enjoy three key factors:

1) Low Risk: Entering at or close to the turn in price means you are entering a position in the market very close to your protective stop. This allows for maximum position size while not risking more than you are willing to lose. The further you enter the market away from the turn in price, the more you will have to reduce position size to keep risk in line.

2) High Reward (profit margin): Similar to number one above, the closer your entry is to the turn in price, the greater your profit margin. The further you enter into the market from the turn in price, the more you are reducing your profit.

3) High Probability: Proper Market Timing means knowing where the real buyers and sellers are in a market. When you are buying where the major buy orders are in a market, that means you are buying from someone who is selling where the major buy orders are in the market and that is a very novice mistake. When you trade with a novice, the odds are stacked in your favor.

So how do we time the markets turning points in advance? It all begins and ends with understanding how to properly quantify real Resistance and Support in any and all markets. Once you can do that, you are able to identify where sellers and buyers is most out of balance and this is where price turns. Once price changes direction, where will it move to? Price moves to and from the significant buy (support) and sell (resistance) orders in a market. So, again, once you know how to quantify and identify real support and resistance in a market, you can time the markets turning points in advance, with a high degree of accuracy.

I sometimes hear people say, “I am only trying to catch the middle of the move.” They are trend followers and say that as if doing that is somehow easier. If price is already moving higher, for example, and you want to buy, where do you enter, where is your protective stop, and so on… I would argue that catching the middle of a move and making a consistent low risk living is harder than proper market timing. I am not suggesting the trend is not important. I just want to be in the market well before the trend is underway. Another thing I hear people say so often is this: “I wish I knew where the institutions were buying and selling.” Every time I hear this I say: “You can see where they are buying and selling, if you know what to look for.” It all comes down to support and resistance, just like buying and selling anything else in life.

Happy Trading !

- MASTERMIND