Market timings and emotions | stockbee


Market timings and emotions

Toughest task for many traders is to do nothing. There is an old adage, there is time to be bullish and time to be bearish and time to do nothing. The time to do nothing is a function of your trading style, trading time frames, mental make up and risk preference.

In a hyper active environment created by mainstream media, financial media like CNBC, WSJ, and Bloomberg, snake oil salesmen and high frquency traders, markets each gyration is a temptation to act.

I am asked by many as to when the signal will turn green. Some have very short term trading horizon and hence days on which they make few dollars and find market going up , they question the logic of market timing. Some have volatility based system and do well in such time frames ( which also means they would be unprofitable during low volatility phases, which means most of the time in a year), and hence brag volatility is good.

Market timing systems are just mechanical systems, they have no emotions. If you look at the Investor's Business Daily market timing system, it is based on number of 1% plus days in 4-7 days. Now when that phenomenon happened sometime mid August lot of people had a emotional reaction. Many imputed motives to IBD calling end of the correction. They were just displaying their emotions and lack of perspective. All that the IBD system does is mathematically it looks at cluster of days. It has no control over when those days will happen.

Same way the Market Monitor is just maths, there is nothing that is going to change because someone wished for another reality.

William O'Neil had a very simple and basic advise in his book " 24 Essential Lessons for Investment Success" :

From your experience , what would you say are the essential steps to successful investing?
If you are an individual investor, whether new or experienced, and you want to make money and perform well investing in common stocks, there are just three key steps you must learn and follow:
  • First you have to develop buying selection rules that let you pick the best stocks.
  • Second you must have rules to take profit and avoid losses.
  • and third you need specific method to tell you when the general market averages are topping and headed down, and when they've finally hit bottom and turned in to new uptrend. That's all you need.


Lee said...

I call this trade the "stand aside" trade! Doing nothing is trading - it is keeping your powder dry until market confusion has subsided! My question is have you begun using the "Blocks" platform from Worden and which Worden platform do you use? Thank YOU for your work!

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Dan said...

What do you use for back testing strategies?

Anonymous said...

Well said, I couldnt agree more!! Mechanical trading systems are emotionless, in that way you remove what a lot of investors struggle with. You have to find what you are more comfortable with,dont listen to anyone unless they are profitable and positive and have an interest in you to become a better trader/investor, set up your rules to be in and out( the more simpler and easier to understand to you is better)and then learn to trust you, trust your personal system and trust the signal and dont fall in love with the stock, because the stock wont go up forever, theres a time to say 'ADIOS' to the trade and exit to protect your profits. I agree with lee, theres 3 types of trades, upswing trade, downswing trade and the 'do nothing, stand aside' trade' just waiting for the system to tell you buy or sell from your watchlist compiled from the tradable ,best of the best,in this case, IBD 200, EP or whatever you are comfortable with.

'Markets are never wrong, opinions often are' Jesse Livermore


I liked a few stocks from IBD and am planing to invest long term (9-12 months) using leaps. What is your suggestion on this as I am buying a stock based on business and not going for market timings (except 12 months of option expiration)?
This is pure investor play no market timing involved but goinging for good companies based on great fundamental and shopping at nice price.
By the way, what is you short-term & long-term strategy at present?

Pradeep Bonde said...

Lee and David
I use Worden for data rest of my stuff is done in my own custom built software.

My approach is trading not investment. My strategy is based on momentum, earnings and neglect.

Jon said...

Couldn't agree more.

Pradeep, do you feel like you're well versed in profitable strategies during low volatility times? Would you ever consider expanding your Idea Pickle Jar to strategies for higher volatility times?

I know that they only come around once a year, but similarly to earnings plays, they can be an extremely profitable time to trade.