Article What Happens When You Try to Time the Market?

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T2W Bot

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Many investors, professional and otherwise, believe that market moves can be predicted and that making frequent moves in and out of markets and investments will lead to greater returns. However, the data tells a different story, which is that market timing and frequent trading are harmful to your portfolio and will significantly reduce your overall return. Let’s begin by examining market timing.
The data below comes from research done by Terrance Odean, Ph.D., of Cal Berkeley, entitled, “Do Investors Trade Too Much?” Dr Odean discovered that amateur investors performed poorly after they made a trade (Either a buy or a sell, both speculative and non-speculative.) Thus, the stocks they sold did much better than the stocks they bought.
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When isolating for just the speculative trades, the returns are even worse.
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But maybe this underperformance only affects individual...
Continue reading...
 
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tomorton

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#2
Interesting research, and I found some more interesting material from Berkeley online which supports Odean's conclusions.

I recognise some traits from my early days as a shareholder, before I committed to TA and spreadbetting. Needless to say, I don't invest that way any longer.
 

dbphoenix

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Aug 24, 2003
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#3
Odean's field of study, however, is behavioral economics, not market timing. Without knowing anything about the models used, the conclusions drawn by this individual are meaningless.
 
Jul 2, 2014
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#4
Odean's field of study, however, is behavioral economics, not market timing. Without knowing anything about the models used, the conclusions drawn by this individual are meaningless.
Incorrect, there is no market timing field of study in academia and there is no evidence that he is ignorant of market timing data. Therefore it is a red herring and an ad hominem to suggest that Odean's conclusions are meaningless.
 

Mr. Charts

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#5
As far as I can see, this article refers to "average" traders/investors and there is no further breakdown.
To demonstrate that the average is poor in relation to indices is fairly meaningless as there are plenty of us who do rather better than the "average". To put it another way, those who have developed and learnt enough to trade for a living, by a self-selecting process of consistent success, are rather better than indices and funds, the returns on which are laughable. Maybe ok for very long term investing if you are sufficiently diversified, but still the returns are poor in comparison.
It's a bit like those academics who believe in EMH and can "prove" it. Skills, knowledge and experience shatter the academic theories in the real world.
 

Rhody Trader

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#6
Odean's field of study, however, is behavioral economics, not market timing. Without knowing anything about the models used, the conclusions drawn by this individual are meaningless.
I read a lot of the stuff Odean has done as part of my own PhD work. To call his conclusions meaningless is unfair. Yes, the methods matter and I have my own challenges to elements of what he's done. We have to keep in mind that he (and his research partners) have been among the first to look at trading rather than investing. The field of study is still in its relative infancy. As with any newer subject, the first step is to look at things in broad terms. Eventually more narrow exploration occurs - which is beginning to bubble up now. Lots of work yet to be done.
 

dbphoenix

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#7
I read a lot of the stuff Odean has done as part of my own PhD work. To call his conclusions meaningless is unfair. Yes, the methods matter and I have my own challenges to elements of what he's done. We have to keep in mind that he (and his research partners) have been among the first to look at trading rather than investing. The field of study is still in its relative infancy. As with any newer subject, the first step is to look at things in broad terms. Eventually more narrow exploration occurs - which is beginning to bubble up now. Lots of work yet to be done.
I didn't say that Odean's conclusions were meaningless. I said that the conclusions drawn by the author of this article that were allegedly based on Odean's work were meaningless. Given DiVirgilio's shallow understanding of market timing, I suspect that he didn't get past Odean's study summaries, assuming that he actually read anything at all of the source material rather than others' opinions of it.
 
Jul 2, 2014
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#8
I didn't say that Odean's conclusions were meaningless. I said that the conclusions drawn by the author of this article that were allegedly based on Odean's work were meaningless. Given DiVirgilio's shallow understanding of market timing, I suspect that he didn't get past Odean's study summaries, assuming that he actually read anything at all of the source material rather than others' opinions of it.
Your first sentence in your previous post referred to "Odean", the second referred to "this individual", so it was not clear whom "this individual was". I think you're jumping to a lot of conclusions...which is making me consider jumping to the conclusion that your conflict of interest as a vendor is influencing your judgement.
 

dbphoenix

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#9
Your first sentence in your previous post referred to "Odean", the second referred to "this individual", so it was not clear whom "this individual was". I think you're jumping to a lot of conclusions...which is making me consider jumping to the conclusion that your conflict of interest as a vendor is influencing your judgement.
What I said was "Odean's field of study, however, is behavioral economics, not market timing. Without knowing anything about the models used, the conclusions drawn by this individual are meaningless." Given that Odean's field of study did not include market timing, much less market timing models, the reference to the conclusions drawn by "this individual" re market timing clearly referred to the individual who wrote this article. My being a vendor is immaterial.
 

sigmund1

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Aug 18, 2016
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#10
The evidence has shown that market timing doesn't yield superior results. With that in mind, here are some quotes on market timing from some of the most astute minds in the industry.

Warren Buffett
"We continue to make more money when snoring than when active."

"The only value of stock forecasters is to make fortune-tellers look good."

"My favorite time frame is forever."

Peter Lynch
"Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves."

"I can't recall ever once having seen the name of a market timer on Forbes' annual list of the richest people in the world. If it were truly possible to predict corrections, you'd think somebody would have made billions by doing it."

Jason Zweig
"Whenever some analyst seems to know what he's talking about, remember that pigs will fly before he'll ever release a full list of his past forecasts, including the bloopers."

Charles Ellis
"'Market timing' is unappealing to long-term investors."

Jonathan Clements
"What to do when the market goes down? Read the opinions of the investment gurus who are quoted in the WSJ. And, as you read, laugh. We all know that the pundits can't predict short-term market movements. Yet there they are, desperately trying to sound intelligent when they really haven't got a clue."

Bernard Baruch
"Only liars manage to always be out during bad times and in during good times."

Mark Rieppe
"Market timing is impossible to perfect."

David L. Babson & Company
"It must be apparent to intelligent investors that if anyone possessed the ability to do so [forecast the immediate trend of stock prices] consistently and accurately he would become a billionaire so quickly he would not find it necessary to sell his stock market guesses to the general public."

Financial Publications
"Let's say it clearly: No one knows where the market is going-experts or novices, soothsayers or astrologers. That's the simple truth." -- *Fortune.

"A decade of results throws cold water on the notion that strategists exhibit any special ability to time the markets." ---* The Wall Street Journal.
As far as I can see, this article refers to "average" traders/investors and there is no further breakdown.
To demonstrate that the average is poor in relation to indices is fairly meaningless as there are plenty of us who do rather better than the "average". To put it another way, those who have developed and learnt enough to trade for a living, by a self-selecting process of consistent success, are rather better than indices and funds, the returns on which are laughable. Maybe ok for very long term investing if you are sufficiently diversified, but still the returns are poor in comparison.
It's a bit like those academics who believe in EMH and can "prove" it. Skills, knowledge and experience shatter the academic theories in the real world.
 

tomorton

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#11
sigmund1 - Its an old story that the individual can't beat the market.

But the people who say this is impossible depend on borrowing money from those individuals. So naturally they're not going to say you can do it yourself, make more profit and save yourself a lot of commission.

After all, imagine Ford or General Motors or BMW suggesting we build our own cars.
And yet, people do......
 
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Jul 2, 2014
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#12
George Soros is widely considered to be the best trader ever. He lost 4% of his net worth trying to time the market after the Trump rally andclosed the large losing positions to avoid FURTHER losses from trying to time the market. dbphoenix, if you could share some of your personal statistics with trying to time the market it would be very helpful, as there is scant data available in the field of market timing. https://www.bloomberg.com/news/articles/2017-01-12/soros-lost-nearly-1-billion-after-trump-election-wsj-reports
 

tomorton

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#13
For what my input's worth re George Soros, can there be any relation between the way one of the richest men in the world trades and the way I trade? Seems unlikely that if we just copy what he does we will become rich too.
 

dbphoenix

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#14
Anecdotes and opinion are not evidence. One market timing model is provided in the Wyckoff thread, but there's little interest in it.

. . . there is little reason for the proponents of either fundamental or technical analysis to worry about the numberless traders speedily adopting the useful methods employed in selecting securities and timing commitments. At least 95% of those who enter the stock market (including the readers of this work) can never be stimulated to study it seriously and logically – the greatest proportion because they haven't the time, or are simply too lazy. The market opinion of this 95% is at heart the perennial human hope to make something for nothing; and the results are, and will continue to be commensurate with the reasonableness of the hope.

– H M Gartley


Market timing is not the chief concern of those who for example are highly leveraged and are unable to control risk. If one is interested in timing the market, he should first understand his market.
 
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Mr. Charts

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#15
Promulgating well worn quotations of "wisdom" is convincing if you don't know otherwise from personal experience. FWIW, many years ago I was a dentist in general practice and worked hard to learn and gain the experience of how to be profitable trading the markets. After a few years I sold up in the year 2000 and have traded ever since, consistently profitably (no, I am not profitable on every single trade - no-one can be).
As a consequence I KNOW that trading the way I do is consistently profitable so the opinions of academics and any one else saying timing is useless are inapplicable - to use a polite word.
The years trading part time before 2000 and all the sixteen years since are not some statistical fluke, so I can smile at those quotes, which in fact belong to a different type of market activity.
Like a lot of things in life, method, method, method plus a good dollop of acquired experience resulting in a little bit of decent judgment equal success.
 
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#16
Anecdotes and opinion are not evidence. One market timing model is provided in the Wyckoff thread, but there's little interest in it.
Anecdotes of market timing success or failure are evidence, just not quantitative evidence for a scientific study, which this discussion would not qualify as.
 

sigmund1

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#17
sigmund1 - Its an old story that the individual can't beat the market.

But the people who say this is impossible depend on borrowing money from those individuals. So naturally they're not going to say you can do it yourself, make more profit and save yourself a lot of commission.

After all, imagine Ford or General Motors or BMW suggesting we build our own cars.
And yet, people do......
I've looked and I've looked but can't find one, not one!

That was, someone to TAKE THE BET.

Warren Buffett, 8 years ago made a Million Dollar Bet with anyone on the planet.

To win the bet all they had to do was out perform the SP500 over the next 10 years.

I've looked but I can't find any private trader who took the bet on.

Now, that's gotta tell you something!
 
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tomorton

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#18
I've looked and I've looked but can't find one, not one!

That was, someone to TAKE THE BET.

Warren Buffett, 8 years ago made a Million Dollar Bet with anyone on the planet.

To win the bet all they had to do was out perform the SP500 over the next 10 years.

I've looked but I can't find any private trader who took the bet on.

Now, that's gotta tell you something!

Doesn't tell me anything. I never listen to anything Warren Buffett says, its irrelevant to what I do and believe. I believe a profit can be made from trading. Do you believe it can't?
 
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#19
Doesn't tell me anything. I never listen to anything Warren Buffett says, its irrelevant to what I do and believe. I believe a profit can be made from trading. Do you believe it can't?
A profit is always made from trading, by either the brokerage or the entity taking the other side of the trade, that's not the question, nor is this just a matter of believing a certain thing and wish fulfillment. The question is whether consistent and high (outperforming stock indexes) returns are possible from trying to time the market by trading.

If you read the Soros article I linked to his long-term holdings (investments) were up signifigantly, counteracting his post-Trump trading boner, this fits my theory that most traders have alternative and consistent sources of income (which trading is not). Most traders wouldn't have the capital or diversified assets (non-speculative liquid assets) to recover from such a stupid trade if they lost 4% of their entire net worth in a month of trading.

There is no evidence that this can be done and the ones who push for propagating this meme that it can be done have a vested interest in it, i.e. they are selling something related to trading or they are deluding themselves with false beliefs to justify their gambling habit.
 

dbphoenix

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#20
I have lost £20,000-80,000 each of the many years I have daytraded futures or stocks, commissions to the brokerage got from me around £5,000-7,000 per year. Even when I'm profitable during some years (years always end as negative even if positive) I feel like I'm treading water or I need to make more and more to make up for the expenses due to how much it costs just to daytrade futures.
some questions:-

1) How many years have you been trading?
2) In ES, what kinda size do you trade relative to acc? (notional / acc)
3) Have you ever ever learned to 'manage risk with size' as Don puts it?
4) What does the sum of money lost mean to you?
5) Do you look for confirmation before you trade?
6) Do you like to use stops to manage risk?
1. 5+ years
2. Maximum margin w/deep discount futures bucketshops to the default high margins w/more conservative brokerages.
3. No
4. Everything at the moment, hoping to get back on my feet with a profitable year once I find some money.
5. Sometimes, this can make me too late and guarantee a loss.
6. I don't like to, but ES has less stop runs than CL, so I do use stops on the ES at times but am quite aware this is a magnet for HFT.
This is more likely the source of your problem than vendors.

You are responsible for your failures, no one else.

Grow up.
 
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