Timing Market Turns: 01/29/2006

Market Timing and Risk Management (current position at the end)

Several times I have mentioned market timing going hand in hadn with risk management. Trading systems and portfolio management modeling involves huge amounts of risk measurement and assessment. It is assessed continuously each day of every year.

Since I received another comment about risk management, I responded at Elite Trader. You may find this personal view interesting regarding what happens when excellent timing combines with the risk taking involved in investing and trading in the financial markets.

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I do take risk factors more seriously than you might think. It might be better stated that timing makes taking the risk of a large position trade much more attractive because an "expected turn" is normally at an extreme in price, volume and indicator ranges.

That contrasts with an extreme in those elements that comes upon a trader or investor without expectation of a change in the direction of a recent sustained movement. In a sense, it's a surprise. Suddenly, the trader is faced with a very high risk and emotionally charged decision. "Should I trade here and now?" Even with a solid plan, it is still a lip biting moment for many traders.

The reality is that everyone can afford some trading platform and can control transaction costs with discount brokers. It is not far astray to assume traders are all looking at the same thing. Isn't it?

When we started applying our methods to different non-equity markets (retail and wholesale), we attempted to forecast days and times when buyers/shoppers would descend in large numbers on the various establishments. The proprietors were always caught short on personnel and inventory at these times. We were able to get very close to these times and days by finding factor precursors and pattern precursors. Very sophisticated data analysis, eh? Our results impressed those who wanted our service.

BUT, we found an alarming piece of information in one test site we focused on. While explaining these important discoveries to the floor manager and her assistant, they both seemed rather unimpressed, almost uninterested. I couldn't help but notice, so I asked about their opinions of this information's potential to improve scheduling of floor personnel, stock levels. etc.

Ever so politely, they explained that they already knew everything we had told them! How did they know? They said it was the same pattern repeated for years. Then why didn't they order more inventory and schedule floor personnel according to what they knew? The answer was marketing and sales mid-management had rules based on models, scientific models!, which prevented them from adjusting to the known facts in their store. Their models said it was too risky to hold that much inventory and schedule people above normal levels specified by the models. It risked tossing the store's margins out of balance.

There are two threads of that story that reformed our research and results.

First, risk management can become too dominant in a thin margin environment. The term risk management implies, and by definition requires something of value to be 'at risk'. Purchasing managers, accounting managers and other fiscal types that have never stood on a sales floor have careers to protect and preserve. So they use models, usually with 3 scenarios. Models then become the 'go to' driver of action and also the 'goat' if the action fails.

The second thread is people are a lot brighter than they are thought to be - especially those that confront the public customer base of an enterprise. Every successful long-term enterprise I have encountered knows this, believes this and lives by it. Site managers have near autonomy and yet are accountable also.

The latter is associated with trading decisions in various ways. When everything says buy but the system or program is neutral, what does a trader do? Violate his system? Wait for the system to signal a buy? Risk management says wait. The infamous trader gut says buy. Who wins?

You plan for the who?, what?, why?, when?, and how? of a trade. But the only answer for the "when?" is filled with various if/thens, ghostly variables and a quid's worth of doubt. It is the last question addressed by a trader or investor. It is truly unpleasant and maybe the worst part of trading, except for "buyers/sellers remorse".

That is precisely why we address it first and keep it in the highest position of power and influence over our trading and investing perspective.

Granted, we have what is an edge. But we have invested blood, sweat and tears, as they say, into finding the answer to timing. It was not a single event of a finding, but a process of many years and scores of iterations to refine and distill our methods and algorithms.

Sharing the results and our opinions that go with those results for the market indexes is just something we wanted to do. So we do it when we can. The problem we have had in the recent past was getting continuous time to do this on a regular schedule.

That is why we have kept our time loci results to intraday. That helps to avoid the situation that someone might take this factor into a longer-term trade and then find themselves wondering if they should do something because I haven't posted in a day or so.

Anyone who has taken a one minute or five minute chart and looked at the time loci we posted in advance can easily arrive at the correct conclusion that this timing system works on any time scale and on any liquid market or stock.

If we were braggartly, we would likely be hyping our methods, wouldn't we? I guess we have seen it work so accurately for so many years, we have come to just accept it as a given. A group member once remarked that the methodology and the technology would be worth a lot if it was kept a secret in the hands of a billionaire trader. Why, I asked. She said it would easily add $1 or more to any one hundred thousand share purchase.

I am just an ordinary person like most people you see at the pub, the office or the mall. Everyone I know has something special they can do. I can do timing. I love timing just about anything! :) But it doesn't make me special, nor anyone's better. So I share it with any who want to see and hear and consider it in their trading.

Good trading and God bless.

W. B. Busin

P.S. We are still in cash in all positions. Initial support is near at SPX 1268-70. Wednesday appears to be a lateral range day with some triumphant upward moves followed by equally zealous downward moves. We are happy to be in cash! :) Risk management works! :)

Timing Market Turns – 01/30/2006

Market Timing for Swing Trading – We will take profits on Monday on any attempt to exceed SPX 1286 but we expect to be out of our longs before noon N.Y. time. We will then attempt to establish a short position, which should last from 3 to 4 days. The downward move we expect could start and end with a significant push downward.

Market Timing for Investors – We will go to a full cash position at the opening. Our view that SPX 1300 might be exceeded on this upward movement is very unlikely. Even though the recent entry has only been established for a few short days, taking the profit and waiting for completion of the current structure’s downward pattern to complete is the prudent strategy in our view.

We will consider ourselves wrong at a close above SPX 1305, and begin looking for a re-entry opportunity for both traders and investor views.

Since the October 2005 lows, the indexes have traded and moved more like the crude oil market than a stock market. Recognizing and adjusting to this change has given our core position a characteristic more like the swing trade positions than what is normally a more long-term perspective. So be it. It is not an uncommon characteristic of a topping process after more than 3 years of upward movement in stocks and indexes.

I owe a few answers to some interesting questions. I hope you will excuse the postponement till perhaps Tuesday. We have spent a great deal of time examining all the data runs for the indexes. The result is this rather unexpected directional change.

Good Trading and God bless.

W. B. Busin

Timing Market Turns

Welcome to the Blog of the W. B. Busin Group Publishing.

Friday, February 03, 2006

Market Timing - 02/03/2006

Market Timing - 02/03/2006

Thursday, February 02, 2006

Market Timing - 02/02/2006

Wednesday, February 01, 2006

Timing Market Turns for 01/31/2006

Monday, January 30, 2006

Market Timing Update 01/30/2006

Timing Market Turns – 01/30/2006

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