Time in the Market vs. Timing the Market — Grizzly Bulls Blog

The things we are doing will not go away. We may have bad years, we may have a terrible year sometimes. But the principles we’ve discovered are valid.

— Jim Simons

The Great Debate over Market Timing

Let’s start with understanding that there’s a very good reason most people don’t believe market timing works. They’ve tried it and failed or know someone who has. The statistics clearly show that the vast majority of people who try to time the market underperform over the long term.

  • Renaissance Technologies (Jim Simons’ firm)
  • David E. Shaw
  • Two Sigma

What do we mean by “time in the market”

When people repeat the phrase “time in the market > timing the market”, what they mean is that they either espouse some form of the Efficient Market Hypothesis (EMH), or they believe that the average investor does not have enough knowledge, time, skills and/or Stoicism to properly time the market. We actually agree with them on the latter, but vehemently disagree on the EMH, an academic theory that essentially claims that no one can ever have an edge because all information in the world is immediately and accurately priced in to the market at all times. Instead, we believe in the 95% EMH, but that 5% makes all the difference and perfectly explains how people with superior models can consistently beat the market. Also, it’s worth quickly noting that some people believe market timing is possible but that the tax consequences are too great to overcome. We have an answer to that too.

What do we mean by “timing the market”

Market timing is a strategy in which investors try to take advantage of the market’s ever-shifting swings between pessimism and optimism. Anyone who’s ever looked at a stock chart can see that while stocks tend to go up over the long term, they never go up in a straight line. There are nearly constant shifts between bullish periods where stocks are rising and bearish periods where stocks are falling on all timeframes. A market timer simply wants to be long or own stocks during the bullish uptrends and short or market neutral (or in cash) during the bearish downtrends. Market timers differ in what timeframes they trade and what strategies they employ to try to identify trend shifts, but in principle they are all trying to successfully execute a strategy with this goal.

How can average investors outperform the market?

Until recently, the answer was essentially, “they can’t” with a few exceptions. That answer is now changing rapidly as the algorithmic trading revolution is finally opening its doors to normal folks.

What is algorithmic trading

At the simplest level, algorithmic trading (algotrading) is defining a set of rules, steps or heuristics and putting it into code so that the trades are executed automatically based on your instructions by your computer program. Many people confuse algorithmic trading with high-frequency trading (HFT), but whether your algorithm’s trade frequency is 100 trades per day or 100 trades per decade is not what’s important. What’s important is whether it generates alpha or superior risk-adjusted returns.

How can normal people take advantage of algotrading to beat the market

The good news is that in 2022, algotrading is no longer the domain of only billion dollar hedge funds. If you have some programming and trading experience, you too can deploy your own algorithmic trading model without much difficulty. However, the real challenge is developing a winning strategy.



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Lee Bailey

Lee Bailey

Founder @ Grizzly Bulls. We’re on a mission to democratize access to the most sophisticated trading strategies by publishing signals from our algotrading models