THE IMPORTANCE OF TIMING

A few thoughts about timing are important before we move forward. We would like to think that we can profit from the news if we act faster than others. It’s not true.

• The market moves on anticipation. “Buy the rumor, sell the fact.” If you bought on every piece of good news published in the Wall Street Journal, you would be broke.
• The market responds to the difference between the actual news and what was expected. The unemployment rate could have dropped 0.2 percent, and the market falls because it expected a drop of 0.4 percent.
• Action does not always mean immediate reaction. When did the Fed start lowering interest rates? When did the market start to respond? In the case of interest rates, it always takes more than one move by the Fed before you see a reaction in the economy.

Can You Apply the Same Buy-Sell Principles to All Stocks?

• Can you write down the rules you’ve used to buy and sell a stock, any stock? Can you write down the rules for when you would have exited the long positions in the previous stock charts? If so, you’re a systematic trader.
• When you look at a chart, do you see it in terms of continuous price moves? Do you look at the highs and lows of price swings? Do you draw conclusions, make up rules, and imagine that you can capture large profits?
  

Looking at a historic chart is frustrating and deceiving. It makes you think that you could have profited from the price moves. It’s much harder when you can’t see the future. However, high-tech display equipment lets you see the past price movement of any stock. It has brought many new traders to the table who think they can profit from future price moves because they can see the past.