Individual stocks (and the market as a whole) have a tendency to go up and down over the course of time. Long term investment strategies are geared to capitalize on the fact that despite these fluctuations, the market as a whole continues to increase as the years go by. Therefore investors can ride out the bad times and still walk away with significant gains. However, think of how much bigger the gains could be if the low periods could be avoided. Or better yet, if investments could be purchased during the down times (when prices are low) and sold at the high times (when prices are high). This is exactly what some people attempt to do through the implementation of market timing strategies.

Market timing strategies attempt to analyze available data in order to predict future market activity. While using this technique investors draw from two basic pools of information.

• Technical data. Deals strictly with quantitative information. Charts such things as price movements and levels of trading. This data is used to establish and predict trends.
• Fundamental data. This data paints a much broader picture. It includes not only quantitative information but also qualitative information. This data reflects developing economic indicators that might affect price levels. 
  

Does market timing work? The answer to this question is yes and no. There are some instances where people have been able to predict swings in the market and to act accordingly. However, this is exceedingly difficult (if not downright impossible) to do on a regular basis. The fact is that most people who try to time the market wind up with poor results. There are two reasons for this phenomenon. 1) They guess wrong. The individual may read the market incorrectly, apply the data incorrectly, or the market may act erratically. 2) They act too late. Many people dump stocks after they realize that it is performing poorly. Unfortunately, by this time they have already suffered significant loses. Additionally, many people buy stocks after they hear that it is performing well, but by then they have missed out on the brunt of the gain. In affect what they are doing is buying high and selling low, which is 180 degrees opposite of what they are trying to accomplish.