This job can be tedious, time-consuming, and draining. The market has to be under constant scrutiny, with no scope of leaving it unattended. To reap maximum benefits from the market timing strategy, it is necessary to keep a continuous check on the movement of securities, funds, and asset classes. So, investors may have to bear the opportunity cost of avoiding the volatility of the market when they follow the market timing strategy. The market has the potential to make maximum profits when it is volatile.

Though market timing allows security against volatility, it also takes away an earning opportunity from investors. These must also be kept in mind while adopting this approach. While market timing has its benefits, it can have certain drawbacks as well. The profitability of this approach is considerably high when individuals shift from one asset class to another, but only during the extremely short-term time frame. Market timing is the most beneficial when investors act on the predictions made over a short period. Market timing is instrumental in allowing an investor to dodge volatilities to some extent. When security displays higher volatility, it means that the investment risk associated with it also is higher. When proceeds from a security or a market index demonstrate a higher standard deviation or variance, it implies higher volatility. This is achieved by helping people avoid volatility associated with the securities or the stock market itself. One of the major benefits of market-timing is the reduction in investment risk. Individuals can expect considerably low losses during the worst periods of stock trading. People can also withhold those whose prices are already low and are likely to increase in the near future. Based on an investor’s analysis, one can immediately sell stocks whose prices are most likely to fall. This can be achieved by not investing in funds or assets which are not expected to show potential for favourable returns. This approach allows investors to gain insight into the future, thereby allowing them to reduce their losses. People are likely to make higher profits when the market is at its best. Alternatively, an investor can also shift their investment from one asset class to another, depending upon the predicted movement of various asset classes. If an individual correctly assesses whether the stock or security (which is currently being traded at a lower price) has the potential of a higher trading price, they can make good profits. Market timing strategy has a strong potential to boost an investor’s profit. It is beneficial to those who understand the strategy and are able to apply it in their plans productively. Investors can reap several benefits from market timing. Complexities in determining entry and exit timings Elevated transaction and commission costs However, market timing also involves a considerable amount of risk since the decisions are taken entirely based on predictions. Market timing strategy helps investors handle the uncertainty associated with price fluctuations. These indicators also study investor trends to make small or mid-term predictions. Technical indicators: These involve an analysis of the past performance of the stock itself. Individuals typically decide to sell or buy stocks, or switch between asset classes, using fundamental and technical indicators, as explained below:įundamental indicators: These involve an analysis of the financial performance of a company to predict the mid or long-term movement of its stock. This investment strategy of taking trading decisions based on analytical techniques is called market timing. Investors in the stock market can benefit from formulating investment strategies based on the security analysis of market dynamics, corporate factors, and economic as well as political movements.