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Timing The Market - Proof it is Not a Joke



October 05, 2011 – Comments (4)

Many people have taken aim at market timing stategies in these turbulent markets saying that no one has a crystal ball or can avoid the pitfalls of large market declines. I disagree and have some favorable results to backup my belief that there absolutely is a place for the individual investor to move in and out of equities and cash positions based on market conditions. 

If you review the trading logs below, the decisions to buy and sell was based on news and events, daily market performance, but most of all, by developing reasonable assumptions that guided the strategy by writing it down in the blog. Many moves were correct, some were incorrect, but the overall positioning resulted in capital preservation and appreciation.

Final Stats on the Aug and Sept Market Timing Experiment:

Rallycry Aug Return 4.43%

S&P 500 Aug Return -6.04%

Large Cap Value Aug Return -5.56% 


Rallycry Sept Return 1.53%

S&P 500 Sept Return -7.75%

Large Cap Value Sept Return -7.96% 


Aug 1-Sept 30 Rallycry Total Return 6.02%

Aug 1-Sept 30 S&P 500 Total Return -12.46%

Aug 1-Sept 30 Large Cap Value Total Return -12.25%

Aug 1-Sept 30 Rallycry outpaced S&P 500 by 18.48%

Aug 1-Sept 30 Rallycry outpaced Large Cap Value by 18.27%

I feel these numbers show the experiment was an overwhelming success!

I would agree there is an element of luck to this timing strategy but the principles of selling into strength, buying the rumor and selling the news worked over this volatile 2 month period. Another key principle was showing a willingness to change course even at a loss to prevent bigger loses. I think staying nimble is extremely important especially when swings of 2-3% are commonplace. Lastly, staying accountable to your thesis and discussing with others your take on the markets helps to keep your approach grounded and consistent. 


August Trading Log + Stats

September Trading Log + Stats

Rex Moore article criticizing market timing

My rebuttal defending market timing

4 Comments – Post Your Own

#1) On October 05, 2011 at 2:54 AM, FleaBagger (27.52) wrote:

Congrats, Rally Cry!

Before anyone takes a cheap shot at Rallycry for his CAPS score, keep in mind that you need to be in a position a week before CAPS lets you close it and go the opposite direction. I'm not saying I vetted Rallycry's results or that I think he'll keep them up (he may or may not), but everybody think before you post something snotty.

I may as well take this opportunity to say that I'm starting to believe in using multi-sigma swings in the S&P to value it, eschewing P/E and other confusing data. Kind of like using TA for value investing, if that's not an outright contradiction. 

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#2) On October 05, 2011 at 10:44 AM, RallyCry (37.09) wrote:

Thank you FleaBagger. I agree that the strategy may be difficult to maintain over a long period because market news and information is constantly changing and it is hard to stay rationale if the strategy is underperforming short term, or the thesis needs to be changed in light of new facts.

However, I firmly believe that documenting your sentiment on paper gives you a concrete way of tracking and reformulating your ideas and decisions on the fly, which are appropriate given the volatility in the market currently. Writing it down also gives you a way of presenting a case for your actions. Most importantly, the perminent nature of the blog makes you stay accountable and own if you were right or wrong each time you make a decision.

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#3) On October 05, 2011 at 8:02 PM, memoandstitch (< 20) wrote:

The log is way too long to follow (may be you can just post your trading confirmations?).

Better yet, do you have any principle or it's just gut reaction?

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#4) On October 07, 2011 at 5:05 PM, RallyCry (37.09) wrote:

The trading confirms are longer than the trading logs and give no color commentary. Each trading log has roughly twelve comments that demonstrate the trading decision along with supporting rationale. Most of the decisions weigh daily market performance, upcoming news events, and a hypothesis about where markets will trade in light of these details.

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