Timing the market. (Don't try this at home!)

First off, let me throw in a disclaimer (CAUTION!!) and say that neither trying to time the market nor day trading are good strategies. This is just my opinion, but if you read enough publications, as evidenced by the link I pasted below, you will see how many so-called experts are routinely wrong.

Market and timing may not mean much alone, but when you put them together they become the most dangerous phrase in investing, especially when done by inexperienced 'traders'. Market timing is the strategy of trying to predict future price movements of an investment or the market and either buying or selling based on these 'educated' guesses. The real benefit of knowing what is going to happen is that your return from buying a stock before it takes off is obviously going to be better than if you buy the stock when it is already on its way up.

The ultimate “buy low and sell high” market timers are called day traders. These day traders, who move in and out of positions in minutes or hours, are the extreme market timers. They look for several small profits each day by capitalizing on swings in a stock’s price. Most market timers operate on a longer time line, but may move in and out of a stock quickly if they perceive an opportunity.

There is controversy about market timing. Many investors believe that over time you can’t successfully predict market movements. Market timing becomes more of a gamble, in their opinion, than a legitimate investing strategy. Other investors argue that it is possible to spot situations where the market has over or under valued a stock. They use a variety of tools to help them predict when a stock is ready to break out of a trading range. (I won't get too specific but many use a technical or fundamental analysis which you can look up and learn more about if you so choose.)

Unfortunately, stock prices do not always move for the most logical or predictable reasons. An unexpected event can send a stock’s price up or down and you can’t predict those movements with charts. This is why it is illegal to have inside info; if you knew about some good or bad news before the general public, you would be able to get in or out of a stock holding and benefit immensely.

The internet stock bull market of the late 1990s is an example of what happens when investors, in the excitement of the moment, become market timers. Everyone had a hot tip about the next “big thing” and investors were jumping on stocks as they shot up. Unfortunately, most of these rockets came crashing down just as quickly as they went up and many investors held on way too long.

The disastrous result was an exact reversal of what they hoped. In the end, it was a case of “buying high and selling low.” You don’t need to know much about investing to know that’s not a successful strategy.

For most investors, the safer path is sticking to investing in solid, well-researched companies that fit their requirements for growth, earnings, income, and so on and so forth.

In summary, if you look for undervalued stocks (like AMX and AIG, which I mentioned below, and many of the large banks, yes I said banks), you may find one that is poised for moving up sharply given the right circumstances. This is as close to market timing as most investors should get and takes a lot of time and effort to pick the right stocks to invest in.

Here is a good article on this topic if you want to read further:
http://www.fool.com/investing/value/2008/05/30/is-this-the-bottom-who-cares.aspx?source=ihptclipb0000001