Orders & execution
Market timing
Trying to buy before rises and sell before falls, rather than staying invested throughout.
How it works
Timing requires being right twice — when to leave and when to return — and the second decision is much harder than the first, because getting back in means buying after a fall that felt like it would continue.
The arithmetic is unforgiving. Long-run returns are concentrated in a small number of days, and those days cluster near the worst ones, so being out of the market during volatility removes the recovery as well as the decline.
Where it misleads people
The comparison people make is "sold at the top, bought at the bottom". The comparison that matters is against having done nothing, and after costs and tax, that bar is higher than it looks.
Related terms
- Dollar-cost averagingInvesting a fixed amount at regular intervals, regardless of the price on the day.
- Behaviour gapThe difference between what a fund returned and what its investors actually earned in it.
- Time in the marketThe idea that how long you stay invested matters more than when you choose to buy.
- DrawdownThe fall from a portfolio’s previous peak to its lowest point before it recovers.
Mentioned in
More in Orders & execution
- Stop order
- Market order
- Stop-limit order
- Limit order
- Good-till-cancelled
- Trailing stop
- Fractional shares
- Day order
All 12 Orders & execution terms · The full glossary, 433 terms
Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.