Sunday, December 21, 2008

Market Timing ..



All technical and short term investors usually try to achieve something called market timing. Most of the traders believes that they can buy at low levels and sell at higher level in short duration of time. Although the term might look very simple but it is one of the toughest task according to industry experts. 


Technical analysis is the study of demand supply which is analyzed by reading different chart pattern which can daily, 3 day, 7 day or 30 days moving averages. The logic behind this exercise is said to be decoding the fundamental nature of human behavior that react to market scenario in either Fear or Greed. Most of the time people behave like a herd and as per the technical analyst the chart pattern actually help them in predicting the future direction of the market.


I am never able to appreciate the art of charting. Infact I seriously doubt the technique of reading charts for predicting future market scenario is something which can be proved or done on a regular basis. 


If we check the history of stock markets, the research suggests that the past information cannot be used to predict the future trends in market as that information is already discounted in the share price. This theory is called Weak form of ‘Efficient Market Hypothesis ‘ and has been proved by several quantitative research experiments.


Few weeks back I was reading a book on market timing by a prominent author who was trying to explain in a very unconvincing manner that the market timing does exist and people can actually do it. It is actually this belief which is making the markets liquid, nearly 60% of the volumes on BSE and NSE is from day traders who want to make the most in a day. They have literally zero holding time in comparison to the Warren Buffet philosophy of holding the stocks forever.


All said and done but I am yet to meet a person who says that he makes money 3 times a week by day trading specially in such volatile markets.

2 comments:

Rishabh Makrand said...

I agree your point that market is a volatile thing like "spirit", but again you need to follow a trend or say probabilities for getting your chance for success.
while preparation for your MBA you also must have followed the "charts"(DI), lols...

Ankit said...

he he , look where this MBA charts have brought me :-) all probabilistic scenarios are over , only one scenario is left :-)