The thing that works for me is to try to remember that we're investing, not gambling. Unless there's a recession, the bias of the markets is to go up, because inflation and corporate growth increases value. This is more or less a linear process, punctuated by emotionally driven events that cause volatility. If the overall market didn't go up in general, it wouldn't be an investment: the purpose of investments is to make money, and the only way to do that consistently is to have the market go up. So, if we don't believe that it will be going up consistently, we shouldn't be investing in it. However, we know from long term experience that the markets are a good investment; our goal should be to take advantage of the investment but forsee large recession drops and get out for those.
What this means to us is that we should be essentially buy and holders, to take advantage of the consistent upwards bias of the markets. However, the TSP system has a built in advantage for traders: essentially we can trade without paying any transaction fees. So, the temptation is to churn our accounts, hoping to beat the market by timing it.
My approach is to have a bias to staying in, to take advantage of the overall upward trend. When things look extremely overbought, I tend to get out, but look for a buy in opportunity as soon as possible afterwards. I don't wait to try to time the bottom, when it gets 1 or 2% lower than I sold, I buy back in, and then simply buy and hold to the next overbought. I don't have to time the top or bottom exactly, just have a good bias towards a profit.
This approach sometimes sidesteps a nice profit by getting out too early. Sometimes I buy back in too early, and have to wait through another 5% loss before it recovers. But, with the positive upwards bias of the market, if a person stays in through most of it and doesn't panic and stay out too much, you get a good yearly return. Straight bull market like last year, I do poorer than a buy and holder. Volatile year, I do a bit better. The advantage to me is I think I sidestep risk by sitting out at least part of downturns.
The problem with a lot of technical analysis is that we get too focused on short time segments of the market, and try to take our profits in too small of time intervals. If we use technical analysis to sidestep large downturns, and to predict a good time to sit out for a short time, it works good. If we get sidetracked by all the noise and think that a recession is just around the corner, or a rocket takeoff is just ahead, all the time, we end up overtrading and sitting out of the market too much to take advantage of the generally upward bias that benefits long term buy and holders.
Just my uneducated thoughts, for what they're worth.
JTH, I have read your stuff for years, and what I have always thought was good was that you held through a lot more than a lot of traders. Looking at the longer term trend rather than the short. I think this year you have been a lot more sidetracked into short term timing, at the expense of longer term investing.
It's been a decent bull market year, except for a couple really unpredictable downturns, that were immediately and unpredictably corrected. Trying to react short term to those downturns has locked in a lot of losses for most of the traders on this board. Patiently waiting through the bottoms instead of getting out and missing the rocket ride back up has been a better strategy, of course easy to see that in retrospect!
dave
