The Importance of Market Timing Models



When we enter correction phases of the market, I try to keep busy building new screens and catch up on my reading. It's a good way to learn new concepts and keep out of trouble. I just wrapped up The Complete Guide to Market Breadth Indicators by Greg Morris, and after the past few days I felt like this would be a good topic to discuss.

Draw downs are the bane of any swing trader's existence. How many times have you spent weeks or months building up your account only to have it quickly snatched away when the market turns to the downside? I know I've been there...many times.  It wasn't until I finally had a clear understanding of how these indicators worked that I started seeing significant long term returns in my accounts.

Market breadth indicators measure the underlying currents of the market for any given period, quantifying the underlying strength or weakness in the current move. A model will consist of one or many market breadth indicators to signal a entry or exit condition.

---Disclaimer: I do not receive any compensation from the sites, books, or other resources mentioned on this site. I am currently an active member of Stockbee.---

Currently, I use Stockbee's Market Monitor designed by Pradeep Bonde for my entry and exit signals. Following the Market Monitor I went into cash on 4/28 and have been SOH (Sitting On my Hands) for the past few weeks. Along with many of the other members, we have been waiting for the entry signal which has yet to happen. Last week 5/27, the secondary indicator signaled positive, but we did not get a confirmation on the primary signal so many members remained in cash. A few of us took some smaller teaser positions only to get smack down on Friday.

I have been using the Market Monitor for over three years now and have successfully avoided all of the large drops we have experienced since 2007. Additionally, I used the Market Monitor signals to manage both my trading and retirement accounts. Back in March 2009, I moved all of my accounts back into the market and pretty much doubled them over the next year.

A detailed description on how the Market Monitor works can be found at:
http://stockbee.blogspot.com/2010/05/if-you-want-to-avoid-market-surprises.html

Investor's Business Daily provides the "Big Picture" which offers a proprietary system where they notify readers if the market is in a confirmed uptrend, under pressure, or market in correction. This excerpt from their site details the concept of "Follow-Through Day"


System developed by William J. O'Neil to identify an important change in general market direction from a definite downtrend to a new uptrend. From the beginning of any attempted rally during a definite downtrend, a 'follow-through' day is identified when the index closes up 1.7% or more for the day on a significant increase in volume from the day before. The first two or three days of a rally are normally disregarded as it has not yet proven it will succeed and 'follow-through' with power and conviction. 'Follow-through' days therefore generally occur the fourth through seventh day of the attempted rally. They serve as a confirmation that the market has really changed direction and is in a new uptrend

Mark Minervini  has taken the IBD model and modified it with some of his own custom components. He normally posts weekly updates accessible to the public discussing his market timing model.

So far, I have been very happy with the Stockbee Market Monitor. I have spent the past three years mastering it and would rather focus my energy on building better watch lists than trying to reinvent the wheel.  Over the next few weeks, I will try to script out some of the indicators from the book and make them available via StockFinder.

In summary, if you want to be successful in the market, you need to start with a mechanism to tell you when to be in and when to be out. I highly recommend reviewing any/all of these sites to get a better understanding of the timing models available out there. You can use these models for your trading accounts and also your retirement accounts.

9 Response to The Importance of Market Timing Models

June 8, 2010 at 2:45 AM

Can the market monitor be used to calculate for other stock market ?

Do you calculate market monitor yourself or purely get the numbers from Stockbee site ?

June 8, 2010 at 6:44 AM

Stockbee provides the Telechart PCFs so you can calculate it on your own. Once you have a clear understanding of how it works you can apply that to other markets. You would also need access to the historical data to back test it.

June 8, 2010 at 8:34 PM

Hi Fisherman,

Based on yr experience a stockbee subscriber, as i am from singapore and do not use Telechart, is it possible to get daily Market Monitor reading from the site as paid member ?

Also, does Stockbee does recommendation on stocks for trading in the site ?

Hope to know more of your experience as subscriber. Thanks.

June 9, 2010 at 7:56 AM

FX - Yes, Stockbee provides Daily Market Commentary reviewing the market monitor, individual stocks and sectors. He also posts a spreadsheet with all the daily MM data. This is nice because you go back historically to see when you had signals to get in and out. Not many people out there will just put their methodology and historical results out for your review.

He recommends trades on a daily basis and there is also a spreadsheet tracking his performance. Last I looked it was up around 40%.

I've been a subscriber for over 3 years and it is well worth the investment. Also, it's a great community of traders in there, everyone is eager to help and offer their insight and perspective on most topics.

June 9, 2010 at 8:41 AM

I just wanted to say thank you for your collaboration with Pradeep on the Excel spreadsheets. I can't wait for the buy zone ratings on the 50 stocks. I am VERY excited about this. Thanks again!

Dale

June 9, 2010 at 4:02 PM

Fish,

In your post you said

"I went into cash on 4/28 and have been SOH (Sitting On my Hands) for the past few weeks."

Do you just let your investments sweep into the money market acct or do you purchase a ETF bond fund that has some yield?

What is your strategy for "cash"?

June 10, 2010 at 12:48 AM

Hi Fisherman,

Appreciate your comments. Thanks ;)

June 10, 2010 at 5:43 AM

Mike - I move it into money market. Not very exciting but safe. Also, note that when you do this, you must wait 30 days before moving it back or you get a short term trading warning.

Art
July 25, 2010 at 1:17 PM

Waiting for the day MM can be created within SF5. I am patient oh fisherman !!

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