How to Succeed in Investing? Timing, Timing, Timing

Originally published on, September 13, 2016.

Timing is everything.

In real estate, the axiom that everyone seems to live by is location, location, location. In trading and investing, that can be changed to timing, timing, timing.

What is market timing? Market timing is the ability to identify a market’s turning points in advance with a high degree of accuracy. If you are like most investors and traders, you have been trained and conditioned to believe that timing the market is not possible. To make up for this, many investors and traders have turned to the use of technical analysis and indicators in order to make up the difference. Today we will briefly look at the use of technical indicators combined with real world market timing.

First and foremost, price: what is it and how does it show up on a price chart? A price chart is nothing more than a picture of orders that have already been filled taken from the Time and Sales report. In a typical candlestick chart the open, close, high, and low of a security is tracked over a given period of time and then plotted on the graph. The candlestick chart provides a great view of market movement, but it is simply a reflection of the past orders and can in no way be predictive of future movement. To use the price chart to identify potential future movement, one must look at the price chart and see where price has become out of balance and left orders unfilled. It is these unfilled orders that create levels of supply and demand that cause market turning points. Look at the chart below.

Learn how to time the markets with accuracy.

This chart illustrates the point. The yellow shaded area illustrates where there was an equilibrium between buyers and sellers, but at a certain point there were no more willing buyers at that price level. Since there were no more willing buyers, the next question to ask is whether or not every seller got their order filled. Simply, the answer is no. If all of the sell orders were filled, then price never would have moved down. Those orders will often times remain in place, and be executed when price returns, which means we will be selling as price is rallying back up into the area of unfilled sell orders. This is very counterintuitive to the average trader that is using technical indicators or trend following to make decisions. Look at the same chart below, which includes the popular MACD indicator.

Why MACD isn't a good indicator of a turn in price.

The MACD (Moving Average Convergence Divergence) is a momentum indicator that many traders use as buy and sell signals. As you can see from the chart attached, the MACD signal occurs significantly after the price has already fallen from the previously created supply zone. A trader relying on the MACD or any other technical indicator will always be later than one that is truly understanding of how order flow moves markets. All technical indicators are mathematical extrapolations of price, which is the true measure of market movement. If you want to see better results in your trading with higher degrees of probability, lower risk and higher reward, then now is the time to begin understanding the power of order flow.

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