It doesn’t matter if you are a Trader or an Investor, market Timing always applies for anyone who is actively participating in the financial markets. Moreover, good Timing also applies for alternative Investments.
Where does market Timing help us?
Market Timing is most crucial in finding entries for trading positions, for decisions when to invest or reinvest as a Long-term Investor and also for Exit strategies. Alternative Investments would basically not work without any Timing as they are usually based on the limited availability of a certain good and obviously when it is sold out, the timing was not good.
When and why is it important?
If you think back on to the financial crisis of 2000 and 2008, wouldn’t it been great to have some indication of a market crash? I don’t count myself as some kind of market wizard who knows when the Crash is coming but with simple precautions, EVERY crash can be prevented.
See below a simple chart of the #SPX (SP500 Stock-index from 1998-2016)
It can be seen in the chart that the underlying index lost more than 50% of its value during the Crash years of 2000 and 2008, some of you might say, well ok but the financial markets work in up- cycles and down, cycles..
But do we have to take the full blow of any crash as an Investor?
How to avoid any market crash – Step by Step
I want to give you some simple tools how to avoid any market crash or at least give you a heads up and be prepared for it with a hedging strategy.
- Develop some kind of routine on how to and when to check the current market situation
- To give you some indication on what I track, see some points below
- Check weekly stocks above 52week highs…. gives an indication if a certain market shows weakness or is getting stronger
- Check weekly index price movement in relation to important moving averages, e.g. MA21, MA50, MA200
- Make notes of the market situation in a diary or log
- You should get some kind of red or green lights out of your routine
- This will provide an indication when to get out of any given market or start hedging