In trading, as in comedy, timing is everything.
On one level, of course, they are quite right. Buy at the top of the market and you are likely to make a loss on the deal. Call the bottom of the market correctly and turn a tidy profit.
True, you would need to be either very unlucky or very inexperienced in the first case, and either very fortunate or extremely skilful in the second. But the principle of trade timing holds good.
Backing your view
But is there more to it than the hackneyed adage “buy low, sell high”? Doesn’t market wisdom state that trying to spot the highs and lows is a mug’s game?
At this stage, it is important to remember the key differences between trading and investment. An investor can give a low priority to the timing of asset sales and purchases, albeit they would be wise to take timing into account. Some investment styles, such as dollar-cost averaging, actively shun the notion of stock market timing, buying the same value of a security at set intervals regardless of what has happened to the price.
That said, trading without timing is unlikely to prove a recipe for success. There is a simple reason for this. Trading is about forming a view about a security or group of securities and then acting on it. This is especially the case when trading trader is pitting their view against that of the CFD provider., in which the
Preparation is essential
Such views do not exist independently of the clock or the calendar. For example, if you think the rate is going to change markedly, you cannot be indifferent as to when this change will take place, not least because your CFD will contain a fixed date by which either you or the provider will be proved right.
If the direction and magnitude of the change that you expect make up two dimensions of the trading universe, then the timing makes up the third.
So, how can you give yourself the best chance of getting your timing right? In short, by embracing key trading principles.
History, they say, does not repeat itself, but it often rhymes. What has happened before may be an imperfect guide as to what will happen next, but it is better than no guide at all.
Second, bear in mind the adage of finance legend Warren Buffett, who has described the markets as a reference tool, telling him if anyone is offering to do anything foolish. In other words, are the securities in which you are interested over-bought or over-sold? Is the market behaving in a foolish way?
If so, your time to act may be imminent.
If you operate a diversified trading strategy, ensure that your different assets do not, beneath the surface, face the same risks. For example, the may seem an independent currency play that is unconnected with the price, but Norway is, of course, a major oil producer.
Keep it rational
Fourth, remember the old saying that a trader should never try to catch a falling knife. This vivid expression translates as a warning to wait until a security has clearly touched bottom before buying in the expectation of recovery.
It may seem to negate the notion of trade timing. In fact, it reinforces it. The point is that traders ought not to try to recoup losses on a falling security by buying more of it at a lower price. That sort of "averaging down" may be appropriate for investors but, as we have seen, trading is very different.
All this is without even mentioning either supposed “long wave” economic cycles or the astrological alignment of the planets.
Base your timing on careful observation, logical thinking – and nothing else, except perhaps, occasionally, a dash of intuition. And even this intuition needs to be grounded in experience.
A sixth, and final, piece of advice. Good timing in trading is not the same thing as perfect timing. The former involves getting your timing sufficiently correct to come out on of a trade on top. The latter is nigh impossible to achieve and trying to do so could drive someone mad.
Timing, this “good enough” timing, is key to almost all successful trading strategies. When your timing is proved wrong or turns out to be not good enough, don’t despair, but learn from it. Mistakes and losses can be educational, if handled in the right frame of mind.
You don’t need to be explicit about your timing, or even to talk about it much. But, to end where we began, even the drollest, driest comedians practise timing, especially when it seems that they are not. Take a leaf out of their book.