Why Is Timing the Market Important?

  • Stock Market Analysis

Background

I am sure as a market participant, you have heard, read, and possibly watched people saying - you can never time the market, do not focus on timing the market, and the like. However, in my opinion, the profitability of a trade or an investment has everything to do with timing the market at the entry as well as exit points.

I will limit today’s discussion related to the entry point.

To illustrate how different minds work, I will give you some background before coming to the point in question.

During the lockdown phase, I helped many of my connections learn simple Technical Analysis that would help them not only get a basic insight into the markets but also help them generate income from trading. Those who always had spare cash at their disposal could easily invest by learning to take a "measured risk" or with a higher probability of that trade turning profitable.

I did this without any fees as the time was hard and many of them were out of their jobs and needed my help generating some sort of income. So I used one of the simplest approaches (which has already been shared via my son, KR's YT channel).

Interestingly, all those who were in need of something like this, ensured that they stick to what had been taught and started generating some inflow which was helpful in funding the household expenses from out of a capital base as low as 15-25K by trading purely in the Equity segment. And some of those who already had surplus cash even during the trying times did not follow the simple approach and ended up continuing to buy on news/rumors/paid tips/he bought so I bought kind of usual trap-based decisions.

I was happy for those who realized the money's worth and also the significance of learning and keeping their mind open.

The Adani (NS: APSE ) Ports Case Study

The reason I wrote this background is that one of my friends who was taught as mentioned above informed me that in early Sep 2022, he bought Adani Ports when the price was around 945-950. I immediately asked what was the basis of the buy decision as at that level, any buy or long decision would have been an unwise one.

And he mentioned that all the shares of the Adani Group had gone up significantly in the last 2 years but Adani Ports did not move up that much (his thinking is not confirmed by the charts & the prices) so he expects the company to do very well in the coming 2-3 years.

I was now introduced to a new basis for buying a stock and simply responded by stating - Okay.

On 3-10 when I was doing EOD analysis, Adani Ports ended the day below 800 after making a low at 773. From the high of 987 soon after my friend had bought. In 8-9 sessions, it to CMP of 773, a drop of 214 points or 21.68%!

I remembered my friend and immediately did a video on the same (link pasted at the end of the post) so that people do not end up buying stocks at random price levels with unheard reasons as was the case here.

The next day, it opened a gap-up and since the set-up was one of the easiest to follow, the 200DMA support, I went long at 799. During the day itself, it went up by 25+ points from my buy price and I felt good about it.

Will it only move up from here?

I have no idea, however, I was comfortable placing the trade as the risk-reward was very good. And when the entry is at a place where the risk is limited, it becomes easier to hold on to the trade for a longer duration.

Conclusion

The above example has confirmed that it is of utmost importance for a trader or an investor to time the entry in stock as random entries would make it very hard for the person to hold on to a losing trade. As it often happens with retail traders, we may end up exiting just around the level from where it may turn around.

I am hopeful that this post was helpful. I would love to read your feedback.

I have explained the potential trade in this video:

Thank you,

Umesh
Not SEBI Registered
Shared purely for informational & educational purposes only.

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  • SATHYAMURTHY PS @SATHYAMURTHY PS
    Nice. Even buying low is a timing strategy. Happy that you are educating people on the right outlook.
    Like 0
    • Umesh Rindani @Umesh Rindani
      Thank you. Appreciate your feedback.
      Like 0
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  • tanveer2utwo @tanveer2utwo
    still i did not understand when to buy and where to exit 200 Ema or sma are worth le to initiate a buy
    Like 0
    • Umesh Rindani @Umesh Rindani
      Thank you for asking.You are unlikely to get a perfect entry as you can see in this case. As long as 200SMA or EMA is respected and the price bounces off, it is usually a good time to buy.I will do a separate post on exit in the next week.
      Like 0
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  • tanveer2utwo @tanveer2utwo
    still i did not understand when to buy and where to exit 200 Ema or sma are worth le to initiate a buy
    Like 0
  • KAMALESH PATIL @KAMALESH PATIL
    it helpful for new traders sir, thanks..
    Like 1
    • Umesh Rindani @Umesh Rindani
      Thank you for the feedback. Glad to know that it's helpful.
      Like 0
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