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8.0 TIMING
Timing provides a means to improve the outcome of your investments by realizing when a position in a security is under performing another. It also enables one to buy (or enter) and sell (or exit) at a more feasible time.
There are numerous strategies and schemes on timing the market and interpreting technical charts.
So to keep it simple, I will discuss just 3 tools to assist your investment decisions, namely:
comparison with an Index ETF, using Moving Averages of stock price fluctuations and Bollinger Bands.
8.1 COMPARISON WITH INDEX ETF'S
Periodically one needs to review how one or more of their investments are performing and have a criteria to make a
judgment to keep it or exchange it. The charts provided by Yahoo!/finance are adequate for this purpose. Although
many websites also provide stock charts, but becoming familiar with one of them is sufficient.
Most charts have a provision to compare it’s performance with one or more other stocks over a selected period of time
(1 day, 1 week, 1 month, 6 months, 1 year, 5 years, etc.). On Yahho!/Finance charts one can also click on comparing
a stock with the NASDAQ, S&P 500 or DOW. As a benchmark of how a stock of interest is performing, my suggestion
is to compare it with one of the triple-leveraged Index ETF’s such as the S&P 500 (UPRO) or the NASDAQ (TQQQ).
Should the stock or security under consideration underperform the UPRO or TQQQ over various periods of time, then
one should consider just investing in the leveraged Index ETF. Although leveraged Index ETF’s have larger
than normal fluctuations, the main criteria is that the moving average of the stock is trending upward.
8.2 MOVING AVERAGES
Because the fluctuation of stock prices can make it difficult and confusing, these fluctuations have a moving average
that is computed and displayed to give an indication of how the price is trending. There are two types of moving
averages (a simple and exponential one) besides differentl averaging time periods. The difference between the
various moving averages is to give a closer or less time sensitive relationship to the actual price movements. In most
cases, a useful one is either the 13 or 20 day moving average (denoted as 13dma or 20dma). An exponential moving
average give a curve that follows the price changes in the near term more than the past.
Ideally one would like to invest in a stock whose stock price and associated 20dma has a steady upward trend with
narrow fluctuations rather than erratic changes. In addition the 20dma is useful to decide when to buy or sell a stock
by noting when the stock price is trading above or below it’s 20dma.
8.3 BOLLINGER BANDS
Bollinger Bands is a technical indicator that enhances a moving average chart with an upper and lower band
(two standard deviations) above and below the moving average line. These bands provide a visual means to see
how the stock price fluctates from high to low over time. This is used to identify buy and sell signals and has
proven very well in doing so. Source: http//www.bollingerbands.com
