However, some investors can still profit from timing the market in a smaller, more reactionary way. If you are interested in tempting your fate with market timing, follow along to find out how it works and what might pay off.
What It Means to Time the Market
Timing the market is an investment strategy where investors buy and sell stocks based on expected price fluctuations. If investors can correctly guess when the market will go up and down, they can make corresponding investments to turn that market move into profit.
For example, if an investor expects the market to move up on economic news next week, that investor might want to buy a broad market index fund, an industry-focused ETF, or single stocks that he or she expects to go up, leading to a profit. Similarly, an investor can buy options, short positions, or take advantage of other investor tools to capture profits from market movements.
While this is great in theory, in practice it is seemingly impossible to make work on a consistent basis. Some investors hit it right every once in a while, but earning a profit from timing the market repeatedly is a pipedream for most.
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Taking Advantage of Small Market Dips
Predicting the next major market dip may be more difficult than winning at Blackjack in Las Vegas, but that doesn’t mean you can’t find a profit when the market dips.
In 2016, the United Kingdom voted to leave the European Union, a move dubbed Brexit. The following morning on June 24, the Dow fell 500 points while the S&P 500 fell 58 points in the first few minutes of trading. However, by the end of July, the markets had recovered and then some. It would have been a perfect moment to swoop in, buy a broad market fund, and sell for a quick profit.
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