Learn How Veteran Traders Are Timing The Stock Market


Simpler Trading Team

Apr 19th 2022  .  7 min read

Timing the stock market to increase trading accuracy is a skill worth sharpening – as it allows traders to increase the efficiency of how they are using trading capital.

Moving too slow or too fast into a trade can be costly.

At Simpler Trading, our team focuses on setups using predictive methods.

(Check out the free video, above, for insight into trading this changing market.)

Add wins by timing the stock market

Traders use stock charts and trading indicators to predict market direction for stocks, sectors, and indexes. This helps manage risk and improve winning percentages.

Timing the stock market is a key component of trading strategy and is an essential skill each trader should learn.

While traders who have been trading for decades readily admit they have no crystal ball, they do know there are methods traders can use to more effectively predict market movement.

Traders can follow trading fundamentals along with technical and economic data to guide their decisions, and avoid letting emotions get in the way.

Traders should not assume that timing the stock market will cure all issues, but this skill can add trading wins.

The goal is to broaden a trader’s view of the overall market. Many traders daily pursue market timing in their strategies.

To help with market timing, Simpler’s traders look at prior years, studying trading strategies that worked to reveal potential future setups in similar environments. Traders can identify principles and tactics, as well as stock picks, that provided the best prior winning percentages.

For example, traders at Simpler considered the average returns of the stocks selected by month in 2021. Traders then predicted that the energy sector would be the leading sector and Occidental Petroleum (OXY) would be a leading stock. This stock went on to gain above average returns. This leading stock, along with five others, gained the attention of traders based on fundamentals and indicators using a system based on proven history.

Market cycles reveal common trade signals

As traders study historical market cycles to identify characteristics in winning trades, the common signals between the trades are used to develop systems.

The team at Simpler Trading develops and shares systems and methods with retail traders to help them with strategies. As traders grow their skills and develop their own trading styles, they can avoid harsh learning experiences by working with traders who have been through rough markets.

Several traders at Simpler cut their teeth in trading during previous bear market cycles, like the current volatile environment.

They are able to share years of experience as it relates to the broader markets during down periods – bear markets – with traders who are still developing needed skills.

As traders study prior cycles in the markets, they realize one consistency is that history repeats itself. Whether traders study the crash of 1929 or the stagflation of the 1970s, the full market cycles were a very tough period and reveal to traders today what worked and what didn’t. When traders step back to look at the past, this gives them a sense of what worked as far as how the broader markets operated and how the importance of key trade characteristics.

One trader’s journey is another’s training

Timing the stock market is something Mary Ellen McGonagle, Senior Managing Director of Equities at Simpler Trading, talks about in her mentorship. Mary Ellen helps traders develop consistency in trading through her newsletter, the MEM Edge Report, which focuses on top-performing stocks. 

Mary Ellen emphasizes how important it is for her trading journey as an expert in the stock market to share the system she has developed.

Personalized education is a critical component of becoming a successful trader at any level. When traders work with someone who is a mentor, this works to shorten the time spent learning necessary trading skills and tools.

A strong mentor shares not only their winning trades, but also those that fail. This can be a bit like having someone yell at you to “Look out!” when a trade goes in the wrong direction.

Sector rotation impacts trade setups

Traders often refer to rotating sectors that affect their investments. What this means is that when a market shift occurs for any reason, a sector (such as housing) will react to another sector (financials).

Traders who understand the relationship between the sectors and the directions they can go have an edge on their trading strategies. Often traders will refer to the housing market as opposed to the financials or even the broader stock market.

As traders seek to accurately predict the direction of the broader stock market, they understand an accurate projection can lead to an opportunity to make a profit.

The crucial step is to correctly gauge the market direction and where the sector sits within the current market cycle.

While that single direction alone isn’t enough to determine strategy, traders also should calculate the resulting impact of the directions and movements of the market. Should the market move against your trade, having a hedge in place can reduce significant damage to your trading portfolio.

This means that traders need to develop a complete strategy for trading that includes what to watch out for and how to locate top-performing stocks. Most importantly, the top stock and the right time to exit are key components of a solid trading setup.

Many traders often follow a pattern of “buying on the dip” but then ignore weakness in the broader market. This works… until it doesn’t.

At the beginning of this year, the dip continued in the technology-laden Nasdaq. The Nasdaq eventually developed into a bear market where “buy the dip” strategies are not as successful.

Similarly, another common flawed strategy is that people will sell too early. In fact, these traders are leaving longer-term gains on the table. Traders would do well to not place a cap on the upside, but to stay with that stock as long as it’s still in an uptrend and the signals are still bullish.

It makes no sense to leave capital gains or profits on the table and then buy stocks that are falling out of favor in the market. These stocks are not likely to trade higher when they are below key resistance. This could mean that a down-and-out tech stock may not be ready to trade higher and faster than the broader markets.

When sectors and industry groups move in and out of favor, it is important for traders to get in front of the stocks that are moving – or trending – in a strong direction as they are poised to take off and outperform the broader market.

For example, finding groups as they’re moving in and out within this cycle can lead to upside potential among the leading names in that group.

Industry performance indicates strength

In the current market, keep in mind the housing and financial industries that have a direct connection with each other.

The past outperformance of these sectors – and other leaders such as energy, technology, and discretionary stocks – when they outperformed the broader market have revealed key characteristics of sector rotations.

Also, when the energy sector was in an uptrend at the beginning of 2021 and then also toward the latter part of the year, it was dampened by a mid-year decline. The energy sector almost went into a bear market. This highlights the relevance and importance of staying on top of industry group rotation.

As energy came in and out of favor, other industry groups did the same. The primary backdrop affecting energy was the move in interest rates by the Federal Reserve.

The energy market has gained strength and is experiencing a continuation of this cycle this year. It’s a fact that rising interest rates are tied to rising inflation. Historically, energy becomes the best performing sector in the S&P 500 when inflation is on the rise.

History is a strong teacher in trading

Traders should understand that the added insight of the historical precedence each industry group has on the broader market can make a significant difference to their trading setup.

Being on the right side of market direction is critical as it potentially propels a stock price higher.

This is why traders who learn what really works from successful traders, using proven tools and strategies, have gained experience they can use to gain an advantage when navigating this market.