Market timing and buying-and-holding are two extremes. You do have a third option: trend following.
We use the 200-day moving average to determine when we’re in and when we’re out. When a position is above its 200-day, it’s a buy signal. When it drops below or 8% off the recent high, it’s a sell signal. Having such a strategy has you in a position in time for any potential long-term uptrend, while having a point at which you sell puts a cap on your losses.
But most importantly, having a simple strategy minimizes the chances that your emotions will enter into the equation. Getting too exuberant or too frightened about events in the market has led many investors astray. [New Year, New ETF Strategy.]
Max Chen contributed to this article.