Timing Is Everything For Successful Traders


Written byWayne Duggan
Published onDecember 24, 2021

Traders often spend sleepless nights agonizing over which stocks to buy and sell. But while it’s true that investing early in the next Tesla Inc. (NASDAQ: TSLA) or avoiding the next Nikola Corp. (NASDAQ: NKLA) can be important, making big money in the stock market isn’t all about identifying buying the best stocks in the market and selling the worst ones. In fact, when you buy or sell a stock is often far more important than which stock you’re buying or selling.

Cautionary Timing Tale


One of the most fascinating examples of how bad timing can be brutal for a stock trader is investment advisor Andy Zaky.


Apple Inc. (NASDAQ: AAPL) has been one of the best stocks in the market over the past 20 years. In fact, an investor who bought Apple shares in 2001 and held onto them to this day would be sitting on a 50,640% return, assuming reinvested dividends.


Yet somewhere along the way, Andy Zaky managed to lose his clients tens of millions of dollars in Apple. Zacky didn’t short sell Apple. He went all-in on Apple call options during one of Apple’s pullbacks in 2012 and 2013. Apple’s stock price eventually recovered fully and went on to new highs, but many Apple call contracts expired completely worthless during the pullback. Because of bad timing and lack of hedging and diversification, Zaky managed to blow up his clients’ portfolios on one of the best stocks in history.


Importance Of Time Horizon

Stock rarely moves up or down in one direction without corrections along the way. Instead, they rise or fall in a series of peaks and troughs. Whether you look at a 10-year or 10-minute chart of Apple’s stock price, you’ll see a similar pattern of peaks and troughs.


This wave-like pattern of price movement is what makes timing so critical for successful trading. Meme stock AMC Entertainment Holdings Inc. (NYSE: AMC) shares are up 1,430% year-to-date in 2021, but the stock is down 41% in the past six months. Traders who got in on AMC before its meteoric rise earlier this year have made tremendous gains. Traders who got in late or held on too long have now generated huge losses. The traders who profited didn’t necessarily pick a better stock, they just had better timing.


Before you enter any trade, have a clear idea of the time horizon your trading idea is based on. If you are trading next week’s earnings report, your time horizon will likely be less than a week. If you are betting on a tech startup disrupting a major industry, your time horizon may be several years. If you are buying an oversold stock based on its relative strength index (RSI), your time horizon may be hours or even minutes.


Takeaway

Sometimes, there is no such thing as a good or bad stock, only good or bad timing. Certain stocks, like Apple, make for better long-term investments than the typical stock. However, buying even the best stocks at the wrong times is a recipe for disaster.


Before you make your next trade, there’s nothing wrong with asking yourself if it’s the right stock. But it may be far more important to ask yourself if it’s the right time.

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