Market Timing Strategies: A Guide

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Do you use market timing strategies to maximize returns on your investments? If so, you are like many other active traders, investors, and speculators who employ technical, economic, fundamental, or other kinds of analysis to make predictions about prices. How do people use timing? When buying and selling assets, for instance, people turn to timing strategies to decide whether to remain in or get out of the market.

Likewise, others use the concept to switch asset classes, which is a common method used by precious metals traders to swap out gold for silver, or vice versa. In the digital age, individuals have a lot of excellent tools at their disposal, including sophisticated software, algorithms, and many more. If you’re a timing enthusiast, here are details about some of the most common techniques in current use by institutional and solo investors.

Support and Resistance (S&R)

One of the oldest techniques for making decisions about what to buy, hold, sell, or swap is S&R, or support and resistance levels. Take a look at any stock price chart, and it’s relatively easy to calculate these points. Fortunately, if you don’t want to crunch the numbers, every trading platform has built-in software that will do it for you. The idea is to wait for the price of a specific asset to break above resistance before buying it.

The assumption, which is not always correct, is that prices will eventually return back below that upper resistance line. Alternatively, the value line will fall until it touches the support point and then, theoretically, begin to rise. For individuals who are actively trading forex, S&R is an approach that is easy to employ and follow, no matter how many currency pairs you work with simultaneously. That’s because the upper and lower pricing ranges are clearly marked on charts, and even the most basic software programs can be set to sell at or near resistance and buy at or near support.

Crossover Averages

Using crossover points of two moving-average lines is another common and historical method. There are hundreds of variations, but one of the favorites among all classes of investors is the 50-200 crossover. Use your software to draw the 200-day and 50-day moving averages on the asset price chart. When the 50-day crosses above the 200, the assumption is that there is an uptrend in progress. In addition, when the 50 crosses below the 200, the theory states that there’s a downtrend taking place.

Seasonal Cycles

For all sorts of assets, particularly commodities and precious metals, seasonal cycles can help with market timing. Gold enthusiasts, for instance, often follow a monthly calendar that ranks each month as generally favorable or unfavorable for the metal’s value. Traditionally, January, July, August, and December experience the most significant upswings in the price of gold. For stock traders, it’s possible to study particular companies and see how their share prices react to general economic news, like inflation rates, consumer price indices, and others. This kind of follow the news approach is ideal for those who like to follow the daily economic headlines and corporate earnings reports.

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