In most parts of daily life, we are trained to believe that timing is everything. While this might be true when referring to finding the right time to plant your garden vegetables, or leaving for your commute to the airport, it can become a bit cloudier when you’re talking about trading securities on the stock market. Market timing is one of the most controversial subjects in the stock market world, especially when it comes to giving advice to beginner investors about how to decide when to buy and when to sell stock. It’s important that you understand the dangers of this practice as well as its benefits before attempting to put it into practice.
In case you’ve never heard of market timing before, it’s important that you understand its technical definition, so you can participate in further discussion on the topic as you grow and learn in the world of stock market trading. Technically defined, this term refers to the practice of attempting to forecast future price movements of a certain stock through the use fundamental and technical analysis, as well as other market evaluation tools. Correctly executed, these techniques can supply traders with knowledge about future price movements before the stock starts to take off.
Those that swear by the practice of market timing are the most dedicated to the philosophy of “buy low and sell high.” This means that they are constantly looking to spot stocks that are on the verge of an uptrend, in order to buy them up quickly, and then sell as soon as they’ve make a significant increase in price. These kinds of traders are constantly shifting their positions in the market in an attempt to make the most of price changes as they are occurring. They might sometimes only hold onto to stock for a few hours.
For those investors that are interested in more stable stock holding positions, market timing can be a toxic philosophy to follow. Not only is it impossible to be completely certain about the strength of a trend or the next price movement that a stock is likely to make, it’s also a fast paced mindset that can lead traders to get rid of a stock before it’s really lived up to its full potential. If you’re going to use this strategy to inform your trades, it’s important to become fully educated about technical analysis, and how to spot stocks that are about to break out of their current trading positions.
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