Why timing the market is so difficult

Investment gurus and market experts never tire of telling the investors to stop trying to time the market and have always advised the investors that the ‘time in the market’ is more important than ‘timing the market’. But, come to think of it, timing the market is all there is to investing and trading in the market. If you are a day trader or an avid investor, you know how important it is to enter and exit a stock at the right time to maximize your returns. But why is timing the market is such a difficult task to accomplish?

There are several factors that make timing the market so difficult. The first and the foremost factor is the varying expectations of the millions of investors and traders. At any given point of time, every investor will have his/her own perception about the direction that the market will take; multiply that by millions and you have a veritablepot pourri of expectations which are dynamic in real-time and, therefore, almost impossible to ascertain. The markets do move in cycles and, based on past movement, technical analysts try to predict market movement into the future, but these are just predictions, which may or may not materialise. Hence, trying to time the market is as difficult as trying to predict the future

The same is true about prices of individual stocks.At any given time, some traders/investors think that the stock price will move up (bullish expectations), while others assume that the price will go down (bearish expectations). Now, depending on the number of investors/traders on both the sides of the fence (bullish vs bearish), the stock price will either move up or down. This is the classic demand-supply tussle between the bulls and the bears. Since one does not know the numbers on either side of the camp, one does not know the outcome of this tug-of-war in advance. Therefore, it is difficult to be on the winning side at the right time—that is, it is difficult to time the stock price movement correctly.

Then there are other factors such as geopolitical and economic developments, industry and market environment, financial performance of the company, among others, which influence the stock price movement from time to time. One does not know when and how these will factors will unfold and, therefore, it is difficult to catch the sudden price movement of any stock just in time.