Logic Insurance, Market Timing Tips & Rules for Insurance Investor - It’s a long held belief that market timing and investing are mutually exclusive, but the two strategies work well together in producing solid returns over a number of years.
Become a student of long-term cyclesLook back and you’ll notice that bull markets ended in the sixth year of the Reagan administration, eighth years of both the Clinton and Bush administrations. These historic analogs and cycles can mean the difference between superior returns and lost opportunities. Similar long-term market forces include interest rate fluctuations, the nominal economic cycle, and currency trends.
Watch the calendarFinancial markets also grind through annual cycles that favor different strategies at certain times of year. For example, small caps show relative strength in the first quarter that tends to evaporate into the 4th quarter, when speculation on the new year reawakens interest. Meanwhile, tech stocks tend to perform well from January into early summer and then languish until November or December. Both cycles roughly follow the market adage to "sell in May and go away".
Buy in ranges that are setting up new trendsMarkets tend to trend higher or lower about 25% of the time in all holding periods, and get stuck in sideways trading ranges the other 75%. A quick review of the monthly price pattern will determine how the prospective investment is lining up along this trend-range axis. These price dynamics follow the old market wisdom that "the bigger the move, the broader the base".
Buy near support, not near resistanceThe worst thing an investor can do is to get emotional after an earnings report, using it as a catalyst to initiate a position without first looking at current price in relation to monthly support and resistance levels. The most advantageous entries come when buying an equity that’s broken out to an all-time high or coming off a deep base on high volume.
iShares Russell 2000 ETF (IWM) breaks out of a 2 year trading range in 2012 and gains 45 points in 16 months before easing into a new range that also lasts 16 months, before yielding a fresh uptrend. Investors felt bullish in the upper half and bearish in the lower half of the 2014 range, although buying into the most negative sentiment at the bottom of the range offered the most profitable entry.
Build bottom fishing skillsTraders are taught not to average down or catch falling knives but investors benefit when building positions that have fallen hard and fast, but show characteristics of bottoming out. It’s a logical strategy that establishes preferred average entry and capitulation prices, buying tranches around the magic number while the instrument works through a basing pattern. If the floor breaks, execute an exit plan that disposes of the entire position at or above the capitulation price.
The effort requires a step back from the buy-and-hold mindset that characterizes modern investing and adding technical principles that assist entry timing, position management, and if needed, early profit taking.
While investment advisors proclaim that index funds held for 20 years or longer haven’t lost money in the last 90 years, they don’t tell you how awful it feels to hold positions that are deeply underwater 3, 5 or 8 years after purchasing them.
While investment advisors proclaim that index funds held for 20 years or longer haven’t lost money in the last 90 years, they don’t tell you how awful it feels to hold positions that are deeply underwater 3, 5 or 8 years after purchasing them.
Market Timing Tips & Rules for Insurance Investor
Just ask American investors who lost more than 29 trillion dollars in realized and unrealized losses during the 2008 crash.
Investors can avoid these doomsday scenarios as well as a host of mini crisis exposures, and still enjoy a generally passive approach to their portfolios through technically-oriented risk management principles applied to prospective positions. Start with this set of technical tips that can guide your investments through a gauntlet of modern market dangers.
Investors can avoid these doomsday scenarios as well as a host of mini crisis exposures, and still enjoy a generally passive approach to their portfolios through technically-oriented risk management principles applied to prospective positions. Start with this set of technical tips that can guide your investments through a gauntlet of modern market dangers.
Watch the calendarFinancial markets also grind through annual cycles that favor different strategies at certain times of year. For example, small caps show relative strength in the first quarter that tends to evaporate into the 4th quarter, when speculation on the new year reawakens interest. Meanwhile, tech stocks tend to perform well from January into early summer and then languish until November or December. Both cycles roughly follow the market adage to "sell in May and go away".
Buy in ranges that are setting up new trendsMarkets tend to trend higher or lower about 25% of the time in all holding periods, and get stuck in sideways trading ranges the other 75%. A quick review of the monthly price pattern will determine how the prospective investment is lining up along this trend-range axis. These price dynamics follow the old market wisdom that "the bigger the move, the broader the base".
Buy near support, not near resistanceThe worst thing an investor can do is to get emotional after an earnings report, using it as a catalyst to initiate a position without first looking at current price in relation to monthly support and resistance levels. The most advantageous entries come when buying an equity that’s broken out to an all-time high or coming off a deep base on high volume.
iShares Russell 2000 ETF (IWM) breaks out of a 2 year trading range in 2012 and gains 45 points in 16 months before easing into a new range that also lasts 16 months, before yielding a fresh uptrend. Investors felt bullish in the upper half and bearish in the lower half of the 2014 range, although buying into the most negative sentiment at the bottom of the range offered the most profitable entry.
Build bottom fishing skillsTraders are taught not to average down or catch falling knives but investors benefit when building positions that have fallen hard and fast, but show characteristics of bottoming out. It’s a logical strategy that establishes preferred average entry and capitulation prices, buying tranches around the magic number while the instrument works through a basing pattern. If the floor breaks, execute an exit plan that disposes of the entire position at or above the capitulation price.
The descent continued to the 50% harmonic level at 56 while monthly Stochastics crossed the oversold level for the first time since 2009 and price settled on the 50-month EMA, a classic long term support level. Investors have another four months to build positions within the evolving base, ahead of an uptrend that reaches an all-time high in 2014. (See more in: Use Weekly Stochastics To Time The Market Effectively).
Identify correlated marketsAlgorithmic cross-control between equities, bonds and currencies define the modern market environment, with massive rotational strategies in and out of correlated sectors on a daily, weekly and monthly basis. This exposes the portfolio to elevated risk because seemingly unrelated positions may be sitting in the same macro basket, getting bought and sold together. This high correlation can destroy annual returns when a "black swan" event comes along.
Mitigate this risk by coupling each position with a related index or ETF, performing two studies at least once a month or quarter. First, compare relative performance between the position and correlated market, looking for strength that identifies a sound investment. Second, compare correlated markets to each other, looking for relative strength in the groups you’ve chosen to own. You’re firing on all cylinders when both studies point to market leadership.
Buy-and-hold until there’s no reason to holdIn a passive approach, investors sit on their hands regardless of economic, political and environmental conditions, trusting statistics that favor long-term profitability. What the numbers don’t tell you is they’re computed with indices that may have no correlation to your exposure. Just ask shareholders who bought into the coal industry in the last 10 years. As a result, it makes sense for investors to identify a capitalization price for each position.
Your profitable investments may also require an exit strategy, although you initially planned to hold them for life. Consider a multiyear position that finally reaches an historic high going back between 5 and 20 years. These lofty price levels mark strong resistance that can turn a market and send it lower for years so it makes sense to take the profit and apply the cash to a more potent long-term opportunity.
Market timing rules using classic technical analysis benefit investments and other long-term positions by finding the best prices and times to take exposure and book profits. In addition, these timeless concepts can be utilized to protect active investments, raising red flags when underlying market conditions change significantly. (Insurance latest news article source and writer: Alan Farley)
Identify correlated marketsAlgorithmic cross-control between equities, bonds and currencies define the modern market environment, with massive rotational strategies in and out of correlated sectors on a daily, weekly and monthly basis. This exposes the portfolio to elevated risk because seemingly unrelated positions may be sitting in the same macro basket, getting bought and sold together. This high correlation can destroy annual returns when a "black swan" event comes along.
Mitigate this risk by coupling each position with a related index or ETF, performing two studies at least once a month or quarter. First, compare relative performance between the position and correlated market, looking for strength that identifies a sound investment. Second, compare correlated markets to each other, looking for relative strength in the groups you’ve chosen to own. You’re firing on all cylinders when both studies point to market leadership.
Buy-and-hold until there’s no reason to holdIn a passive approach, investors sit on their hands regardless of economic, political and environmental conditions, trusting statistics that favor long-term profitability. What the numbers don’t tell you is they’re computed with indices that may have no correlation to your exposure. Just ask shareholders who bought into the coal industry in the last 10 years. As a result, it makes sense for investors to identify a capitalization price for each position.
Your profitable investments may also require an exit strategy, although you initially planned to hold them for life. Consider a multiyear position that finally reaches an historic high going back between 5 and 20 years. These lofty price levels mark strong resistance that can turn a market and send it lower for years so it makes sense to take the profit and apply the cash to a more potent long-term opportunity.
Market timing rules using classic technical analysis benefit investments and other long-term positions by finding the best prices and times to take exposure and book profits. In addition, these timeless concepts can be utilized to protect active investments, raising red flags when underlying market conditions change significantly. (Insurance latest news article source and writer: Alan Farley)
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