Wednesday, July 26, 2017

Is Stock Market Timing Accurate?

August 14, 2009 by  
Filed under Stock Trading Systems

Is stock market timing accurate? That is a question I’ve seen asked more than once.The answer to the question is both yes and no so let me explain exactly what I mean.

Firstly, accurate is being used in a subjective sense in the question. If stock market timing were completely accurate and we all had access to this information then we’d all be retiring very, very rich. In fact, if stock market timing was completely accurate there would be no need for the thousands of types of mutual funds because there would be no need for diversification.

 

No person or persons have any magical crystal ball into the workings of the stock market and can predict with pinpoint accuracy were the markets will go next. Many would-be market timers paint very broad strokes with their stock research brushes. So broad in fact that even though the market may eventually go in the direction they predicted it would still prove difficult to profit based upon that prediction.  For instance, if some stock market guru predicts that the Dow is going to go up 4000 points then many investors may purchase stocks.  If, however, the market plunges 5000 points before that time many investors will have abandoned their positions at a tremendous loss.

 

So in the above example of someone asks if stock market timing accurate, then the answer would be in this case “eventually”. In the stock market there is a tremendous difference between being able to time the market accurately and being able to profit from timing the market.

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