Systematic Market Timing - Or Not?

Market timing - trying to increase gains when investing in the stock market by using some sort of timing technique - is practiced by every investor whether consciously or not. Thus, the choice to market time or not is actually not a choice at all.

Why Every Investor is a Market Timer.

Everyone who buys stocks, exchange traded funds, or mutual funds, or any other trading vehicle for that matter, engages in market timing one way or another. Every time anyone buys a stock, the time that the purchase occurs directly impacts the price paid. If the stock is bought without any consideration to its price or the current market conditions, it still is bought at a particluar point in time.

Sooner or later, every stock is going to be sold. It may be planned to be far out into the future, or it may be minutes after the stock was first purchased. Either way, or at any time in between, the stock owner decides on a time to sell the stock.

What Conscious Market Timing Adds to the Equation

Many traders add a layer of consciousness to the buy-sell decision. Thus, most investors take into account the current price and the overall market conditions when buying and selling a stock. This level of thought is a type of market timing, if not a systematic approach to timing. Nevertheless, the investor is trying to maximize the return on the stock by deciding when to buy and sell.

Systematic Market Timing - Yes

All that systematic market timing brings to the equation is the execution of a plan to increase the return from trading stocks, exchange traded funds, mutual funds, or other trading vehicles (such as bonds, options etc.) At this level, the trader has developed a method not only for choosing the investment vehicle but also for deciding when to buy it and when to sell it.

When the trader takes into account the overall condition of the market on the specific trading vehicle that is being traded, the trader is engaging in systematic market timing.