Focus on Your Stocks, Not on Predicting the Market's Next Move

Timing the twists and turns of the stock market is a trillion dollar industry. There are teams of Ph.D.s, computer programmers, strategists and economists who are trying to predict the exact moment the stock market is at a turning point. Once in a while, someone is lucky and predicts it with some degree of precision, but no one does it consistently over a long period of time.

One school of thought is that it is a waste of time to even try to time the market. Just buy good stocks and hold onto them. That isn't nearly as easy as it sounds, and many folks end up underperforming for decades because they held the wrong stocks.

So what should the individual investor or trader do? Should we listen to pundits who seem to know what they are talking about? It never hurts to understand what the various views of the market might be, but what works best is to listen to your stocks.

The individual stocks that you hold are all that you need to time the market.

Whey you find good stocks with good charts, buy them and increase your market exposure. When those stocks become technically extended and start to look expensive, then sell them and increase your cash. You don't need to understand economics, macro events or any of the other things that Wall Street pros talk about all day.

Today's action presents a good example of how I use this approach. The indexes are up strongly and at new all-time highs. There is nothing to suggest that the market is going to suddenly fall apart, but my cash levels are increasing. I'm locking in some good gains in recent buys and I'm not finding much new that I want to buy. I'm not bearish or negative yet, the way I am handling my stocks makes me automatically more cautious.

The key to using individual stocks to time the market is discipline. You need to have a plan to take profits in a systematic way and to only make buys when the right conditions exist. You ignore all the other outside noise. It doesn't matter why the indexes are up or down. What matters is how the stocks you are holding are performing.

It the market continues to go straight up from here, the great likelihood is that my cash levels will increase further. I will take more profits and will probably have a hard time finding new buys.

It requires some effort to be disciplined in this way, but it beats the hell out of trying to predict what might cause the market to shift gears.

At the time of publication, DePorre had no position in the securities mentioned.