LAP: QS-049

Objectives Describe the nature of market timing. Explain the role of technical analysis in market timing. Discuss applications of market timing.

Describe the nature of market timing. Objective

Market timers, or traders, “play” the market.Market timers, or traders, “play” the market. They try to find patterns to master, so they can make a profit.They try to find patterns to master, so they can make a profit. Correctly timing the market is really a matter of luck, not skill.Correctly timing the market is really a matter of luck, not skill. Investing for the Short Term

Buying securities at the low point of a trend and selling them at the high point for a profit Market Timing A form of “buy low and sell high” strategyA form of “buy low and sell high” strategy Motivated by a security’s priceMotivated by a security’s price Different from “buy and hold”Different from “buy and hold”

Market timing is highly speculative.Market timing is highly speculative. Accuracy is difficult to achieve.Accuracy is difficult to achieve. Market timers frequently make costly errors.Market timers frequently make costly errors. Margin (borrowed money) increases the risk.Margin (borrowed money) increases the risk. Risk and Market Timing CAUTION: HIGH-RISK INVESTMENT

Explain the role of technical analysis in market timing. Objective

$ Precisely predicting price changes is difficult.Precisely predicting price changes is difficult. Technical Analysis Using historical information to evaluate securities and predict future activity Can be compared to weather forecastingCan be compared to weather forecasting A little science—and a little guessworkA little science—and a little guesswork

Gather data from:Gather data from:  Market activity  Past prices  Volume Steps of Technical Analysis 1.Determine a trend from information. Evaluate information in a format, such as:Evaluate information in a format, such as:  Chart  Indicator  Pattern

Timing is everything! Steps of Technical Analysis 2.Note the trend’s extremes. Lowest pointLowest point 3.Buy/Sell at the appropriate moment. Highest pointHighest point

Objective Discuss applications of market timing.

Market timers are playing a high-risk game.Market timers are playing a high-risk game. They take the risk to extremes when they become involved in:They take the risk to extremes when they become involved in:  Derivatives  Day trading Risky Investing

Contracts between tradersContracts between traders Two major categories:Two major categories:  Futures  Options Reasons to use them:Reasons to use them:  To protect against price movements  To benefit from price movements Derivatives Securities that derive value from other assets

A high-risk, market-timing activityA high-risk, market-timing activity Day traders must have access to:Day traders must have access to:  News  Analytical software  Trading desk Two classes:Two classes:  Independent  Institutional Day Trading Buying and selling the same investments within one trading day

Use of margin and level of riskUse of margin and level of risk Why were speculators financially wiped out?Why were speculators financially wiped out? What advice would you give market timers?What advice would you give market timers? Quick Case Playing for Quick Gain— and Feeling the Pain? Stock Market Crash

MarkED Acknowledgments Original Developers Christopher C. Burke, Mary C. Hollaway, MarkED Version 1.0 Copyright © 2007 MarkED Resource Center

Copyright: All photographic digital images on this CD are owned by the aforementioned photographic resources or their licensors and are protected by the United States copyright laws, international treaty provisions, and applicable laws. No title to or intellectual property rights to the images on this CD are transferred to you. These sources retain all rights and are not to be used, digitally copied, transferred, or manipulated in any way. To do so is a violation of federal copyright laws.