Market timing is an investment approach in which the investor attempts to "time" or predict the direction of the market. In market timing, investors make their investments based on an expectation of the market moving in the direction required to make the profit expected, rather than on information about the stock or the company. Many investors think they can "time" the market, but in fact few are successful at it. A big part of the reason for this lack of success is that market timing investment is very subjective. Therefore, it is difficult to remove emotional issues from the investment decisions.
There are some common market timing axioms that do have some basis in reality. "Buy in November and sell in April" is perhaps the most common. It has been observed that stock prices frequently trend downwards during the summer months, and this axiom makes reference to that trend. Another market timing axiom is that stock prices trend upwards during years in which there are presidential elections and downwards in the years following a presidential election. There are many more market timing axioms, and while many have some basis in reality, they are also too vague for an investor to achieve consistent success by following their advice.
Most market timing investors use technical analysis to make their investment decisions. There are many different types of technical analysis tools available, the most popular being charting tools of various sorts. Market timing investors are of the opinion that investment behavior is predictable and that by looking at past patterns, future patterns can be profitably predicted.
This is the holy grail of the market timing investor, to make profits from the correct prediction of the market direction based on observations of past events. Much research effort has gone into models to reliably provide market timing data, but to date, there is little consensus as to their effectiveness. Most investment advisers still dismiss market timing as simply wishful thinking.
