For the last two years, investors have been pulling money from their mutual funds and parking it into an online account to try and manage it themselves. They aren’t “trying to time the markets” as much as they are investing in ETF’s (Exchange Traded Funds)

Being able to see what your portfolio is doing on a tick by tick basis will turn most investors into emotional investors. Emotional investors are wrong 99% of the time. When the indexes are heading lower, self-managed investors will try to be disciplined investors and buy the dips. When the indexes continue lower and the news media starts saying the SPX is going to drop another 10%-15%, the emotions will kick in and most will just sell everything on the next large drop. It is why we are seeing such huge volume spikes at the lows – the retail traders are capitulating.

It happens like clockwork. In the hour the retail investor capitulates, the low will be found and we will get a V-shaped reversal. The retail investor will wait for the next dip to buy, and as we have seen over and over again, that dip never comes and the SPX rallies some 100-200 points higher. That is when retail traders managing their own portfolios will make the next emotional trade – they buy because they are afraid it isn’t coming back down. And the cycle will repeat again.

This rotation out of mutual funds and into self-managed ETF funds will be very dangerous in the years to come. You can manage your own funds and do well. The most important thing to remember – you have to control your emotions. It is one of the main reasons our sentiment timing index has been doing so well with exact turn dates. Emotions are becoming more and more a part of everyday trading.

The key to managing your own portfolio like a pro is to know when and when not to buy. Sentiment cycles will repeat and give you a good idea when to expect a reversal. Even if you start buying and it isn’t the exact low, you will know that low isn’t that far away. That alone will remove the emotions from your trades and you will be ahead of 99% of the other retail traders.   

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For more information on sentiment timing, please click here.