"Timing the market" is considered by many to be a foolish exercise. Timing the market is indeed foolish if it is done the way many seem to think it is done. However, it is really a matter of having a good sell strategy or stop loss system coupled with a good buy strategy. Expert timers do not buy because they feel a stock is a "good" one to own, or sell because they feel it is "high." They buy because there has been a buy signal, and they sell because there has been a sell signal.

Some writers in the financial media color their articles with their own uninformed opinions rather than search out the facts. Let me give you an example of what I mean. In a recent well-known financial publication, a widely followed writer wrote about "market timing" and said that it has taken on a new meaning that differs markedly from the original meaning of the term. The term "market timing" has been used in reference to how some individuals trade mutual funds by illegally locking in an unfair price advantage and profiting on small pricing gaps between markets in different time zones. The writer mentioned above informed the reader that in the original definition, market timing involved shifting money into cash or bonds when the investor thinks stocks are overpriced and moving back into stocks when he or she thinks they are cheap. This author was correct with regard to the changing of the definition. However, he then went on to say what he thinks is wrong with the original timing concept.

The problem is that he leads his readers to assume timing decisions are based on what the timer "thinks" about the market and economy and what he believes "ought" to be the influence of such an environment on investments. This indeed appears to be the way most amateurs and some under-performing professionals practice "timing." Fund-provided data does show that there is more money flowing into funds at market highs and more withdrawals at market lows, reflecting how most people attempt to "time" their investments. This does show that, as a group, they are almost always wrong. In fact, that's why there is such a thing as a "contrary market indicator" based on what the small investor is doing. It is an odd-lot volume indicator based on the fact that the small investor tends to increase his buying at the highs and increase his selling at the lows. Therefore, when there is mounting odd-lot buying (individual investors are "feeling good" about the market), professionals view it as a warning signal of an impending market downturn.