A few decades ago, it was widely believed that the most efficient way to analyze a market for trade was to determine the basics, such as the number of warehouses in the warehouse, current demand data, expected harvest yields, and so on. Many assumed that the Technical Analysis was not useful. The reasons given were that the price action was accidental or that the underlying factors of the underlying asset were ignored. The facts are quite the opposite.
Many have learned that the old “buy and hold” strategy can be expensive. There are many stories of those who have found that the value of their portfolio has been broken (or lost) after being held for several years. The financial crisis of 2008 marks one of several historical periods in which investors lost millions. While it is always a good idea to know a company’s financial health as well as their future sales / profit potential, what may be a healthy financial report today and the outlook tomorrow may look much different.
Technical analysis focuses on price movements, predicting the direction of prices based on its ebbs and flows (i.e., fluctuations, cycles, etc.). The basic factors of any property are built into the price action, because the market is all discounting. In addition, history tends to repeat itself and this recurring nature of price action can be predicted and exploited.
Many technicians rely on a variety of indicators to help present some aspects of historical price data for time use. Where one indicator may highlight some basic cycle pattern that could help predict the next period of trend reversal, another indicator may highlight the state of market repurchase or resale, all relative to past price action.
The technical analyst relies heavily on price charts. Certain patterns are often repeated, giving the technician the ability to break prices. Such patterns are given names, such as the pattern ‘Head-and-sholders’, ‘wedge’ or ‘flag’, etc. All of these technical approaches are useful to some extent.
Accurate timing is crucial in today’s volatile markets. Without greater precision in determining the time, the trader is exposed to a higher degree of risk and can leave higher earnings on the table.
Let me illustrate this.
For discussion, suppose the price range of each trading day is 50 points. If your allowable risk exposure (how much you will allow the market to move relative to your position) is 50 points, you must enter the market exactly on the day you expect the move to start in your favor to avoid stopping at a loss. If your allowable risk exposure is 100 points, you need to pinpoint the time within +/- one day to avoid being stopped at a loss. This emphasizes the importance of accurately determining the time in the market.
Now in the real world, each day the price range varies from the next. Depending on how effective your timing approach is, you may be able to risk less than the average score range. The less precise your time approach to the market, the more you should initially risk in the store.
Although only market timing can be loosely used using standard technical indicators, trend lines and moving averages, accurate timing can be achieved with good market forecasting methods. Market forecasting for market timing is extremely effective because, unlike most technical indicators that are inherent or lagging behind, a good market forecasting method can predict market reversal on the exact day of a trend reversal. Giving any market forecasting method with a small deviation of +/- one day can give any trader an incredible advantage in predicting market turnovers for the purpose of accurately determining time and market trading.
Some traders are historical legends who used market forecasting methods for the purpose of accurately determining time. Who hasn’t heard of William Delbert Gann (better known as WD Gann)? This financial trader is known for developing several technical approaches, such as the use of Gann angles or trend indicators. His prediction methods included the use of square nine, cycle analysis, and market geometry. Using “market forecasting” tools like these and others, it is known that many times he turned a small amount of money into a large one quite quickly.
So, there are two main points that I hope to gain by reading this article. Point # 1 is that in order to better manage your risk exposure and maximize your earning potential, you need to be more accurate with your approach to time lag in the market. Point # 2 is that the most accurate way to determine the time in the market is to use market forecasting techniques, where you can often time your trading until the exact day of the new move.
There are many secrets, methods and techniques of market forecasting that you can now learn to improve your market. Some are good, some not very good. I have spent more than three decades learning, testing, and discovering market forecasting approaches. When I started, it wasn’t as accessible as it is today. So, it has definitely recorded some growth over the years and therefore you should have no problem finding an approach that will suit your trading and investing style.