PrimeXBT: Why trying to time the market is a mistake

Investors and traders invest in assets for one reason: to make money. Every investor or trader has heard the phrase "buy low, sell high" before, but putting this motto into practice is not always easy. It is also difficult to ignore the money in front of your eyes when you analyze past price trends and see in retrospect how much additional profit you could have made had you reached the high and low for maximum profit. However, as research shows, it is a great danger to want to time the market.

Why do traders try to hit highs and lows?

The markets have been more volatile in recent years than ever in history. The stock market reached its all-time high in February, followed by the worst Q1 ever recorded due to the market crash for the so-called "Black Thursday".

While oil prices were trading at over $ 60 a barrel at the year end, prices were striking negative $ 37. Bitcoin plummeted from $ 10.000 to $ 4.000 before the price rose again. Timing the high with a short position at 100x leverage on a margin trading platform would have led to life-changing profits and benefits.

The largest stock indexes have risen more than 30% since trough, oil is trading for over $ 20 a barrel and Bitcoin is back to over $ 9.000.

Those people who took a long position at the bottom earned a fortune.

It is precisely this temptation of life-changing profits that causes greed and hides all common sense among investors who cannot resist it. If this greed becomes too great, even the best traders will seize these emotions and fear will arise should the market develop in the opposite direction.

There are famous statements from iconic investors about this phenomenon. The Omaha Oracle himself, Warren Buffet, advises to be greedy when others are anxious and to be anxious when others are greedy.

Opposing perspectives, especially in the financial market, can be profitable. But it's even more difficult to eradicate prejudices and not just go against the herd.

The best investors and traders use data from technical and fundamental analyzes and try to remove any bias and emotions when trading in order to become successful.

Examples in which it was not possible to time high and low

The S&P 500 has been an important topic among traders since Black Thursday. The index suffered a major crash, but has since rebounded with a price gain of 30%.

Traders around the world are trying to time the S&P500 high as economists agree that the big sell-off and recession is just around the corner.

In the 1970s, the United States suffered two major recessions that caused the S & P500 to crash.

Investors who bottomed out in 1970 had to hold their positions for five years only to get a better start afterwards.

Markets often remain irrational longer than most investors can remain liquid. This was the case during the Great Recession in 2008.

As the systematic risk of Bear Stearns brokerage firm removed from the financial system, the stock market began to rise. Investors thought it was a V-shaped low, but it wasn't there.

However, as soon as market tales returned to reality that the risk was there all the time and had little to do with Bear Stearns itself, the market collapsed again.

There is no Bear Stearns today, but the reason for the current recovery is the corona virus. Preventive measures and quarantine have boosted the stock market, but the economic damage will match the rise in the markets and bring it back to reality.

But when will it be? As past results have shown, there is no rhythm or cause, and all technical analysis and indicators in the world cannot predict human emotions and how they respond to a "Black Swan" event like the corona virus.

No one could have predicted just a month after the all-time high that the stock markets would experience a huge collapse in just a day. Nor could anyone have predicted a pandemic that would have such a dramatic impact on the economy.

Because of these and many other factors, timing the market is not an ideal strategy for profitability.

What can you do with highs and lows instead of swing trading?

The fact that it is many well-known traders That has proven successful and profitable in trading on the financial markets for decades proves that there is still money to be made in the stock market as long as traders give up trying to time ups and downs and instead opt on the intraday - Concentrate opportunities.

These investors and traders may miss the biggest price fluctuations, which bring the greatest ROI with the least number of trades, but instead they benefit from the market movement in between.

Over the course of a few months, swing traders, who perfectly hit the highs and lows, will earn a considerable amount of money with a large trade. But the probability - as the research shows - to get the highs and lows exactly is very unlikely.

Active day traders, who instead focus on fast in-and-out scalp trades, are able to book profits regularly and can do so consistently with profitable trading strategies instead of hoping that they will enter the market have perfectly timed.

These active traders already have their ideal profit-taking in mind before entering a trade, so greed never catches up with them. They also don't wait for a high or a low that never or comes much later than expected, at the expense of their hard-earned money.

Unlike standard investors, active traders rely on unique tools such as leverage to align their trades and make small movements more effective, or long and short positions to take advantage of how the market turns.

By using these tools, traders don't have to rely on catching highs and lows to be profitable. Nor will they waste their money trying to keep the trend going.

PrimeXBT Research: Trading multiple asset categories creates a successful portfolio

PrimeXBT is a multi-asset margin trading platform, made for active traders and offers access to over 50 assets in the Forex market, stock indices, gold, oil and cryptocurrencies such as Bitcoin, with a leverage of up to 1000x.

Traders on the platform can build a diversified portfolio of actively managed positions in any of the instruments offered and never miss an opportunity to make a profit. By spreading capital across multiple assets, traders are exposed to a lower overall risk. The Data show that a well diversified portfolio can also significantly increase performance.

It also prevents any urge to try to hit market lows and lows, as many assets are either anti-correlated or uncorrelated, so they all move up and down at different times. And since these markets are on fire due to record-breaking volatility, there have never been so many opportunities that are all on one trading platform.

The platform offers built-in charting tools for active traders to find ideal entries and make profits instead of hoping to hit the low or high.

Stop trying to time the market and register today PrimeXBT for success in forex, stock indices, commodities and cryptocurrencies with a leverage of up to 1000x.


Disclaimer: This post is a sponsored article. The advertising company is solely responsible for the content - assumes no liability. The contribution does not constitute an investment recommendation or a recommendation to trade a specific cryptocurrency.

What else happens in the crypto world: