Market Timing

Market Timing?

Market timing, it is a type of the strategy used by the marketers and investor for the buying and selling of shares and various financial securities that are been traded to take advantage of future change in the price of the stock and securities on a particular time period. Market timing strategy basically gives the investor an idea about the future scenario of market trends and economic performance and their impact on the price of various securities.

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How does the Market Timing strategy work?

Various analyses are carried out by the investor to know the trend and price fluctuation that will occur in the future on particular stock and security. So when the market is not performing good or it is bearish, the investor will try to purchase the security to take advantage of future high price, and when the market performance increases or it is in the bullish trend, at that time the investor will sell their security to earn a profit. The main element to consider under this strategy is the market performance and economic condition of the country. Market Timing strategy can be used for short term analysis and for long term analysis.

Techniques use in Market Timing

There are mainly two techniques used in Market Timing Strategy:

  • Technical Analysis
  • Fundamental Analysis

Technical Analysis:

  • Technical Analysis is mainly used for short-term investment purposes. Under this method, the future trend of the market is analyzed with the help of historical data and past trends that occurred in the market. All the charts and graphs are analyzed and with the help of that data the future change in the market can be analyzed and investment can be made on the basis of analysis.

Fundamental Analysis:

  • Fundamental Analysis is mainly used by investors who are wishing to invest for a mid-term to a long-term purpose. Here the investor takes into account some assumptions for buying and selling the security on the basis of a certain trend in the market. These types of analysis are mostly carried out by the investor who is regularly trading in the market for a long time and can analyze the market very sharply.

Thus, according to the decision of the investor to invest for short term or long term, the above techniques are used by them to analyze the market properly and to buy the security before the price rises, and to sell the security before the price started to fall down.

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Advantages of Market Timing”

  • Market Timing strategy helps the investor to monitor the market activate and helps them to earn a high return on their investment.
  • It helps the investor to limit the amount of loss.
  • As they constantly monitor the market the risk in near future can be analyzed and they can sell their security to minimize their loss and risk.

Disadvantages of Market Timing

  • Under the Market Timing strategy, investors have to continuously look after the market trends and to monitor if very carefully if they missed out on any information then it may result in high losses for them.
  • As this strategy requires continuous observation and helps to earn a high return because of this the rate of commission is also increased by using market timing.
  • The investors have to pay tax on their returns when high profits are incurred.

Final Thoughts:

Market timing as a strategy can seem straightforward enough, but in practice, the market does not always behave rationally. Hence, It is best suited to experienced traders who possess the expertise and the time to track the markets, ensuring that at the right time they enter and exit trades.

Author: Charmi Mehta

About the Author: Charmi Mehta is currently pursuing MBA with a specialization in Finance from the Department of Business Administration, Bhavnagar. Charmi is very much interested to work with data and its analysis and she is also fascinated by the financial market. With a systematic and sensible approach, investors can take advantage of these opportunities.

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