Market timing, the right time for you to trade financial products

Learn how to use the strategy to hit the top and bottom of an asset

It is common to see many investors – especially beginners – trying to hit the top and bottom of an asset. After all, the general perception is that buying low and selling exactly high is the most profitable of all these strategies.

This goes for any asset class, including those who want to buy and sell cryptocurrencies. In fact, the strategy even has a name: market timing, which means “time to market”. That is, try to hit as close as possible to the top and bottom of some asset.

However, this practice has some risks that can make the investor end up losing money if he doesn't know how to use market timing. Therefore, if you want to know the technique and its risks in more depth, check out the text below and clear all your doubts about market timing.

What is market timing?

As described at the beginning of the text, market timing is a strategy that seeks to hit the best prices over time. In this sense, the investor tries to buy an asset at the lowest price and then sell it closest to the top.

For example, imagine an investor who wants to buy BTC at the current time, with the price of cryptocurrency going down. Using market timing, the investor will try to buy the cryptocurrency as close to the price that he considers the bottom of the market. Then he will keep the BTC in storage for later selling it, when the bullish cycle starts again, closer to the top.

Thus, market timing requires above all patience, as the investor must wait for the best buying opportunities. Therefore, investors who use this strategy do not usually do day trades or short-term operations.

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fusion of strategies

As it is a more lasting strategy, investors who use market timing can adopt other strategies. In other words, market timing doesn't just demand knowledge of assets or chart movement, but a fusion of both.

As the investor will spend more time with the asset in hand, it is of paramount importance that he chooses quality investments. For this, it makes use of fundamental analysis, choosing healthy companies and assets with a good history of profitability (past profitability does not guarantee future profitability).

On the other hand, the investor also needs to know what will be the movement of the market and, thus, know the trend of the asset. And it is at this moment that technical analysis allows you to understand the charts and check how the asset behaves in relation to the market.

From there, the investor tends to identify the best entry and exit points to, respectively, buy and sell the asset. The cheaper he buys, and the more expensive he sells, the greater the profit of this operation.


Market timing risks

Of course, the biggest advantage of market timing is to take the equity maxim literally: buy low and sell high. Therefore, the strategy serves to maximize profits from variable income operations.

However, the strategy presents important risks that must be taken into account by the investor. First and foremost: in real life, it is extremely difficult to predict the best moments to enter and exit the market.

An investor who uses market timing can miss the time to buy an asset and the price can fall further after he made the purchase. Likewise, if the investor sells the asset too early, he may fail to take advantage of much higher valuations throughout the bull cycle.

In addition, the market is subject to unpredictable factors that can affect the price of assets. For example, an unexpected financial crisis can bring quotes down much further than expected. This can cause a lot of damage to some investors and, at the same time, open up entry opportunities at very discounted prices.

Finally, the market timing strategy can take much longer for investors, without offering much higher returns than simply investing for the long term. 

If you intend to follow the market and wait for the best entry and exit points, market timing can be a good option. But it is not the only strategy that offers good financial returns. For investors in general, a long-term focus and asset diversification tend to be a safer and more efficient strategy.