the hAnDbook of teChnICAl AnAlysIs- Short at a high price and cover at a lower price
- Short at a relatively low price and cover at an even lower price
Listed below are the some of the strengths of each approach with respect to
timing the markets.
Technically Based Market Timing offers the ability to
■ (^) Provide precise entry and exit prices
■ (^) Provide the precise time of entry and exit
■ (^) Provide real‐time bullish and bearish signals
■ (^) Provide real‐time entry and exit price triggers
■ (^) Scale in and out based on significant price levels
■ (^) Time entries and exits based on volatility behavior of the underlying
■ (^) Exit extended trends at technically significant price‐reversal levels
■ (^) Time entries and exits based on market order flow
■ (^) Define percent risk in terms of significant price levels
■ (^) Use volume and open interest analysis to gauge strength of an underlying
move in order to time entries and exits
■ (^) Use market breadth and broad market sentiment to gauge the strength of an
underlying move in order to time entries and exits
■ (^) Forecast potential peaks (for shorting or liquidating positions) as well as po-
tential troughs (for getting long and covering positions) via the use of cycle
and seasonality analysis
Fundamentally Based Market Timing offers the ability to:
■ (^) Gauge undervalued stocks with a potential to appreciate in value, but lacking
information regarding the precise price or time to get long or to cover
■ (^) Gauge overvalued stocks with a risk of depreciating in value, but lacking in-
formation regarding the precise price or time to get short or to liquidate
■ (^) Screen and participate in fundamentally strong stocks in a sector or industry
as part of an active asset allocation or rotation strategy, but lacking informa-
tion regarding the precise price or time to get long
the fundamentalist versus technical analysts
Listed below are some characteristics of the fundamentalist and technical analyst:
The Fundamentalist:
■ (^) Is mainly concerned with intrinsic value
■ (^) Strives to understand the underlying causes for potential market moves
■ (^) Is focused on which company to participate in
■ (^) Can tell you which company to invest in, but cannot tell you the most advan-
tageous moment to start participating in that stock
The Technical Analyst:
■ (^) Is mainly concerned with structure and dynamics of market and price action
■ (^) Is more concerned with the effects of potential market moves rather than the
cause of them