Confusing Market Timing with Stock Market Prediction

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Confusing Market Timing with Stock Market Prediction

Market Timing | Stock Market Timing Signal News

There seems to be quite a bit of confusion in the markets about the concept of market timing and treating it as a true form of stock market prediction. Some market timers would like to think they can predict the future, but the reality is that nobody can. Let's clear up a bit of this predictive confusion and get to the real heart of what market timing really is trying to accomplish.

Market timers do not:

have the ability to see future outcomes
have special trading powers or inside information
have perfect track records

Market timing is an educated guess

Market timers use prediction based on past models, trends and history to make an educated guess based on historical and technical analysis of price movement and volume trends on which direction a particular stock or security will move.

Market timers use technical analysis

A lot of data is looked at when using technical analysis models and the mathemetical computations can become very complex. Regardless of how complicated the model is, it still requires interpretation which is based on human decisions. Often it is rules-based and coded into the technical models, but the decision rule was created by humans and is therefore fallible.

Market timers extrapolate trends

Extrapolation is not the same as prediction or "seeing the future". Market timing involves a degree of trend extrapolation and is really saying "this trend should continue until it doesn't". Once trends are established they generally continue until they are broken, and the strength of trends can be compared and reviewed in an effort to select the most likely stocks to continue its directional movement.

Like all human endevours market timing has its downfalls, and is certainly not a magical crystal ball, but studies have shown overtime that it can work and has the ability to significantly outperform the market indexes over longer periods of time.

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