If you are an investor or trader, it is impossible to avoid talking about market timing. Everyone seems to have an opinion about what will happen next to the market. Much of the discussion is well reasoned and much of it is highly emotional, but it all has one thing in common -- it isn't very accurate.
In my early days of trading, I paid little attention to the overall market. I would find a trade or two that I liked and then focus on the action in those specific stocks. Quite often, I wouldn't even know if the indexes were up or down.
As I became more experienced, I learned that stocks are often correlated with the action in the indexes and that a trade wouldn't work as well if it was counter to the prevailing market trend. That caused me to focus more on the indexes, but the downside of following them is that there is always someone warning that disaster lies ahead.
In good markets, bad markets, or flat markets, there was always someone that would plant seeds of doubt and push you to temper your optimism. It became increasingly evident that my approach to the market was good, but that anticipating corrections or pullbacks constantly prevented me from reaching my full potential.
It isn't just me. The vast majority of hedge funds underperform in strong markets, because they are hedging. They are always anticipating the disaster that lies ahead and that comes with a very heavy opportunity cost.
Peter Lynch, who produced a stunning annualized return of 29% from 1977 to 1990, put it this way -- "Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves."
I bring this issue up, because it is nearly impossible for any prudent market participant to not wonder if she should start preparing for a correction. There simply is no way that this action can be sustained for very long.
It is a difficult balancing act, but far too many market players err on the side of caution. They fear that they will be caught in a sudden overnight crash and will never escape. Fear of the overnight crash is one of those things that never really occurs, but it is hard to avoid thinking about at times.
If you are long, you may lose some money when a turn does occur, but in almost all cases you will make more by staying bullish, rather than anticipating a crash.
There is great temptation right this very minute to start anticipating a crash, but you are far more likely to make money by finding some good charts instead.