Psychology What Happens When You Try to Time the Market?

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.

Placeholder

When isolating for just the speculative trades, the returns are even worse.

Placeholder

But maybe this underperformance only affects individual stock investors. Let’s take a look at research from Stanford’s Jason Hsu, Ph.D., on how the mutual fund investors fared. As you can see below, the returns of investors who purchased a mutual fund and held it are much better than those who bought and sold, and this holds true for every single category.

Placeholder

Taking things a step further, Dr. Hsu actually quantifies just how much trying to time the market is costing investors. On average, mutual fund investors are destroying 2% of their returns each year by trying to move in and out of funds and mutual fund categories.

Placeholder

But it doesn’t stop there. What if we want to destroy even more value? All we have to do is trade more frequently. There is a direct correlation between number of trades placed and performance. The more you trade, the more likely it is that you will perform poorly.

Placeholder

Tying everything together, a Dalbar study shows that the average return for an investor is significantly lower than the return of an index. In the study, one that has been replicated many times, investors who were primarily investing in the S&P 500 index, or stocks that made it up, underperformed it by an extremely wide margin. This kind of study can be replicated with any index, in any asset class.

Placeholder

The underlying reason for this is behavioral psychology. According to Dr Odean, “Psychologists show that most people generally are overconfident about their abilities and about the precision of their knowledge. Security selection can be a difficult task, and it is precisely in such difficult tasks that people exhibit the greatest overconfidence. Dale Griffin and Amos Tversky write that when predictability is very low, as in securities markets, experts may even be more prone to overconfidence than novices."

In Summary
Investors as a whole are overconfident in their skills, regardless of their backgrounds, which leads them to “try to do something.” Thus, market timing and frequent trading continue to persist, despite the overwhelming evidence of the foolishness of such strategies and the hefty reduction in return that will inevitably result.

James D. Di Virgilio can be contacted at Chacon Diaz & Di Virgilio Wealth Management
 
Last edited by a moderator:
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?

I see some confusion.

Just sometimes, people who listen learn something!

Buffett made a ONE MILLION DOLLAR BET that no-body can out perform the SP500 over a 10 year period.

Buffett put his money where is mouth is.

What's difficult to understand?
 
I see some confusion.

Just sometimes, people who listen learn something!

Buffett made a ONE MILLION DOLLAR BET that no-body can out perform the SP500 over a 10 year period.

Buffett put his money where is mouth is.

What's difficult to understand?



I'm not concerned what Warren Buffett believes or does or says. I was trying to elicit what you believe about private trading. Still interested.
 
Most traders lose money, some traders make money.


Well, we can agree on that.
Same goes for the restaurant business for example. And pubs in the UK are closing at the rate of 4 a week. (Good riddance.)

Makes private trading seem less risky maybe.
 
Keep selling the dream, buddy

I agree with the Db this time.....How could you lose so much money without having a sound proof system?

You were gambling more than trading, hoping for the better.

Next time you try, trade small until you get a grasp of it (probably you will never as many as you said) and not before at least 6 months of proofs, treat your $100 like it is $100000.

If you cannot make money from 100 you certainly will not make it from 100000
 
Last edited:
I agree with the Db this time.....How could you lose so much money without having a sound proof system?

You were gambling more than trading, hoping for the better.

Next time you try, trade small until you get a grasp of it (probably you will never as many as you said) and not before at least 6 months of proofs, treat your $100 like it is $100000.

If you cannot make money from 100 you certainly will not make it from 100000

No - I needed the income when I was trading to finance my financial goals, while I was working 40-60 hour weeks and dealing with that stress to finance this endeavour. Before you and dbphoenix judge me, let's see you put balls to the wall and see how you do instead of selling reheated non-copyrighted ideas to new traders. Let's see how long you last walking on hot coals. if I wanted to do this for supplementary income while profiteering off the backs off others I could have easily found a small edge, which is not what I was looking for, what my ethics permit, or what the popular literature or trading education culture suggests is the goal of day trading and timing the markets.
 
No - I needed the income when I was trading to finance my financial goals, while I was working 40-60 hour weeks and dealing with that stress to finance this endeavour. Before you and dbphoenix judge me, let's see you put balls to the wall and see how you do instead of selling reheated non-copyrighted ideas to new traders. Let's see how long you last walking on hot coals. if I wanted to do this for supplementary income while profiteering off the backs off others I could have easily found a small edge, which is not what I was looking for, what my ethics permit, or what the popular literature or trading education culture suggests is the goal of day trading and timing the markets.

I am not selling anything. I an not judging you. I was just giving you a different perspective. Personally I never lost serious money even when I was learning due to sensible money management.

Words like "needed" "stress" "walking on hot coals" do not go hand in hand with retail trading. Market are fluid and you got rigid.

If you need the money and you have not got the appropriate knowledge in trading and in yourself to deal with the market I suggest you do not trade, robbing a bank in central London will give you a better chance...

Of course this is only my perception.

I wish you all the best.
 
Last edited:
I am not selling anything. I an not judging you. I was just giving you a different perspective. Personally I never lost serious money even when I was learning due to sensible money management.

Words like "needed" "stress" "walking on hot coals" do not go hand in hand with retail trading. Market are fluid and you got rigid.

If you need the money and you have not got the appropriate knowledge in trading and in yourself to deal with the market I suggest you do not trade, robbing a bank in central London will give you a better chance...

Of course this is only my perception.

I wish you all the best.

How could I be gambling and hoping if commissions and fees made up half my losses in several of my losing years? The fact is, retail trading is not a stable source of income, you and I have both now presented evidence confirming this fact. If dbphoenix can offer up some overdue P&L statements then maybe there will be an iota of evidence to the contrary.
 
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.

Ok, post your P&L brokerage statement(s) from 2016, you can use an image editor to obscure the last 2-6 digits of your account number, thanks in advance.
 
This is more likely the source of your problem than vendors.

You are responsible for your failures, no one else.

Grow up.

How have I not grown up? How am I entirely responsible for my own failures, the crux of many of your political posts suggests society has a major influence in influencing human cultural interaction/behavior. What specifically is the source of my problem in my inappropriated quoted post? What have you done with your own personal trading account, since 1998 daytrading, which I have not and what has lead you to consistent profitability? Or are you not a consistently profitable day trader? Thank you in advance.
 
How have I not grown up? How am I entirely responsible for my own failures, the crux of many of your political posts suggests society has a major influence in influencing human cultural interaction/behavior. What specifically is the source of my problem in my inappropriated quoted post? What have you done with your own personal trading account, since 1998 daytrading, which I have not and what has lead you to consistent profitability? Or are you not a consistently profitable day trader? Thank you in advance.

Refer to the post of yours which I quoted.

Even though you've been trading for more than five years, you still don't understand how to manage leverage, you have no idea how to manage risk, you "hope", you don't understand what "confirmation" is all about given that you have no thoroughly-tested and consistently-profitable trading plan and thus no edge, and, in part for the same reason, you don't use stops.

These choices are your own. No one forced you to make them. Therefore they and their consequences are your responsibility. It is also your responsibility to make better choices. If you don't, you will go broke. This does not signal mature behavior.

You're welcome.
 
Refer to the post of yours which I quoted.

Even though you've been trading for more than five years, you still don't understand how to manage leverage, you have no idea how to manage risk, you "hope", you don't understand what "confirmation" is all about given that you have no thoroughly-tested and consistently-profitable trading plan and thus no edge, and, in part for the same reason, you don't use stops.

These choices are your own. No one forced you to make them. Therefore they and their consequences are your responsibility. It is also your responsibility to make better choices. If you don't, you will go broke. This does not signal mature behavior.

You're welcome.

There is no thoroughly tested and consistently profitable trading plan, price action is variable, contrary to what the more vulgar PA authors sell. If you believed strongly that $300 commissions are impossible to trade with on the ES you would have contacted government regulators, as per your far-left political postings on here. If you run an automated backtesting strategy you will be surprised how much commissions can effect a mature trading plan, making a breakeven plan negative > 20% YTD. You speak as one who knows from experience, please share your commission and capital % returns for 2016.
 
There is no thoroughly tested and consistently profitable trading plan, price action is variable, contrary to what the more vulgar PA authors sell. If you believed strongly that $300 commissions are impossible to trade with on the ES you would have contacted government regulators, as per your far-left political postings on here. If you run an automated backtesting strategy you will be surprised how much commissions can effect a mature trading plan, making a breakeven plan negative > 20% YTD. You speak as one who knows from experience, please share your commission and capital % returns for 2016.

And how much money have you lost by trading this set of beliefs?

Who is responsible for these losses?
 
And how much money have you lost by trading this set of beliefs?

Who is responsible for these losses?

How much money have you made by marketing Wyckoff's beliefs?

Individual responsibility, free will and determinism, is not an entirely black and white issue, perhaps I overestimated your intelligence?
 
How much money have you made by marketing Wyckoff's beliefs?

Individual responsibility, free will and determinism, is not an entirely black and white issue, perhaps I overestimated your intelligence?

The amount of money I've made or lost has nothing to do with your losses.

You have a choice between being a winner or being a loser. Making that choice is your responsibility. You are currently choosing to be a loser. At some point you may choose to change that course. Or not. The choice is yours.
 
The amount of money I've made or lost has nothing to do with your losses.

You have a choice between being a winner or being a loser. Making that choice is your responsibility. You are currently choosing to be a loser. At some point you may choose to change that course. Or not. The choice is yours.

Yes it does, you are clearly judging me as a loser, perhaps a black swan loser even. Therefore I am a rare occurence among losers, a real loser's loser, in your mind. Your mindset is that of a winner's, with the past success to prove that confidence many would take as arrogance, with implied winning P&L statistics. Please share them or stop judging me.
 
Yes it does, you are clearly judging me as a loser, perhaps a black swan loser even. Therefore I am a rare occurence among losers, a real loser's loser, in your mind. Your mindset is that of a winner's, with the past success to prove that confidence many would take as arrogance, with implied winning P&L statistics. Please share them or stop judging me.

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.

This state of affairs has nothing to do with how much money I make or even whether I trade at all. If you choose not to assume the responsibility for your situation, then you ought to quit. If you choose not to quit, that is also a choice.
 
This state of affairs has nothing to do with how much money I make or even whether I trade at all. If you choose not to assume the responsibility for your situation, then you ought to quit. If you choose not to quit, that is also a choice.

Individual choices are influenced by group ideas and attitudes or memes. I'm pretty sure you spread a meme on numerous trading forums that price behavior has not changed with the advent of HFT and algorithm trading from the 1900s or earlier due to human psychology and that the markets can be consistently exploited based on technical analysis and price's footprint caused by human psychology. Both of these claims are outrageous claims to make without evidence.

Why would you sell a book to traders if you were unable to consistently profit from the market? I can't imagine why anyone would do that unless they have a sadistic and deceptive side to you that is not revealed in common discussions of politics over tea. Mr Charts is free to step in here and answer my questions as well, since earlier in the thread he did make a claim that he reaps huge profits from the market, while apparently he teaches for a living as well.
 
A losing trader can do little to transform himself into a winning trader. A losing trader is not going to want to transform himself. That’s the kind of thing winning traders do.

--Ed Seykota
 
Top