PrimeXBT: Why Attempting To Time The Market Is A Mistake

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PrimeXBT: Why Attempting To Time The Market Is A Mistake
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Investors and traders take positions in assets for one reason alone: to make money. Every investor or trader has heard the phrase, “buy low, sell high,” but putting this into practice isn’t always simple.

It is also difficult to ignore dollar signs flashing before your very eyes when analyzing past price action and in hindsight seeing how much additional profit could have been made by attempting to perfectly catch the top and bottom of each movement, for maximum profit potential.

However, research has shown time and time again that attempting to time the market in this fashion is a very dangerous mistake.

Why Do Traders Try to Time Tops and Bottoms in Markets?

Markets are more volatile over the past three months than any other time throughout history.

The stock market reached an all-time high in February, only to suffer its worst Q1 close ever recorded following the Black Thursday market crash.

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Oil prices started off the year trading at over $60 a barrel, then fell over to over negative $37 a barrel. Bitcoin fell from over $10,000 to under $4,000 before rebounding.

Perfectly timing the top with a short position at up to 100x leverage on a margin trading platform would have led to life-changing profits and wealth.

Major stock market indices are up 30% from the lows, oil is back trading over $20 a barrel, and Bitcoin is already trading back at $9,000.

Those who happened to long the bottom made a fortune.

It’s this allure of incredible returns and life-changing profits that causes greed to overtake common sense in investors and traders who can’t resist.

It is when this greed becomes too powerful, that emotions get the best of traders, and it can quickly turn into fear when the market moves in the other direction.

There’s even famous saying from iconic investors dedicated to this exact phenomenon.

The Oracle of Omaha himself, Warren Buffett advocates being greedy, when others are fearful, and to be fearful when others are greedy.

Contrarian perspectives, especially in financial markets, can be profitable, but it is even more critical to remove bias altogether, not simply go against the herd.

The very best traders and investors utilize data from technical and fundamental analysis only, and practice removing all bias and emotion from their trading strategies in order to become successful.

Examples Where Timing Tops and Bottoms Have Failed

The S&P 500 has been a top topic amongst traders ever since Black Thursday. The stock index suffered a major crash but has since already recovered over 30%.

Traders everywhere have been trying to time the top of the S&P 500, as the common consensus across most economists is that the selloff and recession are only just getting started, and the stock market is due for yet another collapse.

In the 1970s, the United States economy faced two deep recessions that caused a crash in the S&P 500.

Investors who happened to catch the “bottom” in 1970 wasted five years of holding a position only to find a better opportunity to buy in 1975.

Markets often stay irrational longer than most investors can stay solvent. Such was the case during the 2008 Great Recession.

As soon as the “systemic risk” of the Bear Stearns brokerage firm was removed from the financial system, the stock market began to rally. Investors began clamoring about a V-shaped bottom, that wasn’t the bottom.

However, as soon as the market narrative returned to the reality that the risk was there all along, and had little to do with Bear Stearns itself, the market came crashing back down to that reality.

Today, there’s no Bear Stearns, but the narrative driving the current rally is the coronavirus. Preventative measures and a quarantine have caused the stock market to pump, but the damage done to the fabric of the economy will soon catch up with surging markets, and once again cause them to come down to reality.

But as to when that may be? As past results have shown, there’s no rhyme or reason, and all of the technical analysis indicators in the world cannot predict how human emotion will react to a black swan event like the coronavirus.

No one could have predicted that just a month after setting a new all-time high, major stock indices would suffer enormous single day collapses. And no one ever could have predicted a pandemic coming that has had such a dramatic impact on the economy.

It’s due to these factors and so many more that market timing isn’t an ideal strategy for profitability.

What To Do Instead of Swing Trading Tops and Bottoms?

The fact that there are many well-known career traders, who have for decades proven themselves successful and profitable trading financial markets that prove there’s still money to be made, so long as traders ditch trying to time top and bottoms, and instead focus on the intraday opportunities in between.

These investors and traders may miss out on the largest price swings that bring the most amount of ROI within the fewest amount of trades, they instead profit from every market movement in between.

Over the course of a few months, swing traders who accurately time the top and bottom perfectly will make a substantial amount of money with one large percentage trade. But the probability – as research has shown – of actually catching the timing of each top and bottom is extremely unlikely.

Active day traders who instead focus on fast, in-and-out scalp trades are able to consistently book profits, and they can do so consistently with winning trading strategies rather than hope they’ve timed the market perfectly.

These active traders have ideal take profit levels already in mind before they even enter a trade, so greed never gets the best of them. They’re also never stuck waiting for a top or a bottom that doesn’t arrive, or does so far later than they expect, at the expense of their hard-earned capital.

Active traders, unlike standard investors, rely on unique tools such as leverage to gear their trades and make small movements even more effective, or long and short positions to profit whichever way the market turns.

By utilizing these important tools, traders won’t need to rely on timing tops or bottoms to become profitable, nor will they waste their money getting stopped out as they keep trying to catch the end of a trend.

PrimeXBT Research: Actively Trading Multiple Assets Creates Successful Portfolio

PrimeXBT is a multi-asset margin trading platform designed for active traders, offering access to over 50 assets across forex, stock indices, gold, oil, and cryptocurrencies like Bitcoin, at up to 1000x leverage.

Traders on the platform can build a diverse portfolio of actively managed positions across each of the instruments offered, and never miss an opportunity for profit. By spreading capital across multiple assets, traders are exposed to less overall risk and data shows a well-diversified portfolio can also increase performance significantly. 

It also prevents any urge to try and time market bottoms and tops, as many assets are either anti-correlated or uncorrelated, so they all ebb and flow at different times. And with these markets so on fire due to record-breaking volatility, there’s never been this many opportunities located all on one trading platform.

The platform features built-in charting tools for active traders to find ideal entries and plan take profit levels, rather than hoping and praying they catch the bottom or top.

Stop trying to time the market, and register for PrimeXBT today for access to forex, stock indices, commodities, crypto, and more at up to 1000x leverage.


Disclaimer: The views and opinions expressed here do not necessarily reflect the views of ZyCrypto. None of the information you read on ZyCrypto.com should be regarded as investment advice. Every investment and trading move involves risk, you should always conduct your own research before making any investment decision.