ONE OF THE toughest aspects of trading is that in order to make money, you’ve got to be right on a number of different fronts. Risk control, position size and timing must all be taken into account if you want to profit on stock trades. Of all these elements, timing tends to stir up the most controversy.
According to a recent and widely publicized study from research firm Dalbar, most mutual-fund investors are unable to time the stock market successfully. In fact, these investors aren’t even having much luck at keeping up with the rate of inflation. But as traders (read: active investors), like it or not, timing plays a role in investment decisions. Because it’s not just enough to know what to buy — the question of when to buy is arguably even more influential to the bottom line.
Most investors worry that they’re getting in at or near the top, especially in situations where a particular stock or sector has already risen substantially. Whether it’s low self-esteem or lack or confidence, they believe that as soon as the order hits the tape the market is bound to plummet. (more…)