How to Time Your Trades to the Market

Your market timing strategy is critical to your success as a swing trader. When the stock market rallies, 3 out of 4 stocks will move up with the market. On the other hand, when the stock market sells off, 3 out of 4 stocks will decline with it.

So, it makes sense to time your trades with the market because you want catch these rallies and avoid the declines!

Market timing using moving averages

The first thing you want to look at is a chart of the S&P 500. Look at the 10 SMA and 30 EMA to determine if you should be focusing on long positions or short positions. Here are the rules for timing your trades to the market using moving averages.

If the 10 SMA is above the 30 EMA, you should be focusing on long positions only.

If the 10 SMA is below the 30 EMA, you should be focusing on short positions only.

This simple technique will tell you what type of trades you will be concerned with right now. It identifies the underlying trend to keep you on the right side of the market. Here is an example:

Looking at the chart above, you can see how these moving averages create focus. This part of your market timing strategy answers the question of what types of trades to focus on (long or short).

Moving averages are trend following indicators. As such, they will only work well in trending markets - not when they are the market is trapped in a trading range.