Predicting short-term market movements (Market Timing) will cost you money or opportunities

Any attempts to try to predict the direction of the stock market are called market timing. Academicians and professionals as a group agree that it cannot be done; in fact, it will cost you money or opportunities.

Fear, greed, and a basic human desire to think we can know or control our future all drive us to try to predict short-term market movements.

If you flip a coin ten times and it comes up heads ten times, that is random luck, not a 'system'. We know that over time it will be 50-50, heads and tails. Many who guess which way the market will move and guess correctly think they have a system and really can do it. Yet if you guess correctly and try to time the market a number of times in succession, it most likely that you will guess wrong at some point and more than wipe out your prior gains and be well behind (see the Long-Term Capital Management story). This is also evident from reading academic studies on the subject and from observing what has happened in the markets over the decades.

Therefore, avoid timing the market. How then to resist the temptations posed by events or rapid market moves?

First, and most important, is to have buy and sell disciplines, and right after that, a proper time horizon. Emotions are an important step, for as soon as you feel the pull of fear in a down market or a down stock, you know that you do not have enough knowledge to know what to do. Knowledge, disciplines, and your buy and sell disciplines can be called upon to resist emotion-driven timing.

Computers and sophisticated software programs for determining weather changes or changes in the direction of the stock market have been developed and refined over the last two decades. But computer software cannot properly account for all of the linked factors that influences weather changes or market changes.