Can You Actually Time the Markets? YES! ... but There's a Catch.

Investments in Play #339 | June 30 - July 3, 2025

Many new investors think they can time the markets, and, while it’s true that you can find great entry and exit points, the success of market timing comes down to the technique. The challenge lies in the market's unpredictability, influenced by economic indicators, geopolitical events, and investor sentiment.

Given these challenges, my approach of Buying and Selling in Stages - buying or selling in increments rather than all at once - can be more effective. This method involves setting pre-designated price levels and using technical indicators like moving averages or potential points of support and resistance to guide decisions. For example, you might start buying when a stock falls below a 50-day moving average and add more as it rises, reducing the risk of mistiming the market.

Buy and Selling in Stages helps spread risk, potentially benefiting from trends over time. It also reduces emotional stress, as you're not making a single high-stakes decision. To implement, consider using limit orders for automatic trades at set prices and monitor market cycles (accumulation, markup, distribution, markdown) to guide your stages. This approach is less about perfect timing and more about disciplined, gradual action.

The Problem with Market Timing

Market timing is an investment strategy where investors make buy or sell decisions based on predictions of future market movements, aiming to buy low and sell high. This contrasts with buy-and-hold strategies, where investors hold securities long-term regardless of short-term volatility. The allure of market timing lies in its potential for significant gains, but it's widely debated for its difficulty.

Research, such as from Investopedia: Market Timing, suggests many investors, academics, and financial professionals believe it's nearly impossible to time the market consistently, especially over extended periods. The challenge stems from the market's complexity, influenced by factors like economic data, geopolitical events, and investor sentiment, which are hard to predict. For instance, an interest rate cut might benefit real estate but hurt banking stocks, creating confusion

Many studies show that most market timers underperform compared to buy-and-hold investors over time. The unpredictability is evident in historical market cycles, where bear markets often precede significant uptrends, and predicting these shifts is notoriously difficult

The Case for Staged Market Timing

Given these challenges, staged market timing offers a middle ground. This strategy involves buying or selling in increments, at pre-designated amounts, rather than making large, single trades. It aligns with the theme that while market timing is possible, it's critical to manage the uncertainty of market highs and lows.

Staged approaches, such as averaging into positions, allow investors to spread risk and potentially benefit from market trends over time, even if they don't nail the exact top or bottom.

For example, during market recoveries, you might start buying small amounts in the accumulation phase (when prices are low and smart investors begin purchasing) and add more as the market enters the markup phase (when prices rise). Similarly, selling in stages during the distribution phase (when early buyers sell to latecomers) can lock in gains gradually.

Here are detailed steps:

• Set Pre-designated Price Levels: Decide on specific price points for buying or selling, such as using moving averages (e.g., 50-day or 200-day) or support/resistance levels. For instance, you might buy when a stock crosses below its 50-day moving average and sell when it exceeds the 200-day average.
  

• Use Technical Indicators: Tools like relative strength index (RSI), Fibonacci retracements, and moving average crossovers can signal entry and exit points. Additionally, looking at charts to find price points where a stock resisted going higher and pulled back would be a good place to trim a little. Likewise, looking for price points where a stock bottomed might be good places to add.
  

• Monitor Market Cycles: Understand the four stages—accumulation, markup, distribution, markdown—to guide your stages. For instance, during accumulation, start buying; during distribution, begin selling in stages

• Use Limit Orders: Automate trades at set prices to remove emotion, ensuring you stick to your staged plan. Limit orders also provide the benefit of avoiding sudden idiosyncratic downdrafts like the Flash Crash of May 2010 where the stock market sold off 20% and then rebounded all within less than half an hour.

Psychological and Practical Benefits

Staged market timing offers psychological advantages by reducing the stress of making high-stakes, all-in decisions. It allows for more rational decision-making, as you're not pressured to get the timing exactly right. Practically, it mitigates risk by spreading investments, potentially capturing trends over time. For example, during the 2008 financial crisis, staged buying as markets recovered could have allowed investors to average into positions at lower prices, benefiting from the subsequent bull market.

Conclusion

While market timing is controversial and often criticized for its difficulty, a staged approach offers a disciplined, less risky alternative. By buying and selling in stages at pre-designated amounts, investors can potentially benefit from market movements while mitigating the risks of mistiming.

Research continues to suggest that while perfect timing is elusive, staged strategies, supported by technical tools and market cycle awareness, can be a viable way to navigate the market's complexities. Always stay informed and adapt to changing conditions for the best outcomes.

However, as always, what works for me won’t necessarily work for you. The key to learning how to invest is to find the strategy that works best with your risk appetite and emotional tolerance.

If it works for you, no matter what it is, then that’s a good investment strategy!

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Read on to discover the week’s biggest winner and loser in the Investments in Play portfolio as well as all the moves I made this week in addition to my future buying and selling price targets for the positions that saw changes over the week.