10 Ways to Improve Your Market-Timing

This column was originally published on RealMoney on Dec. 6, 2007 at 1 p.m. EDT. It's being republished as a bonus for TheStreet.com readers. For more information about subscribing to RealMoney, please click here.

It's December and getting close to the time when traders need to wrap things up and evaluate their profit -and-loss performance for the year. Unfortunately, most folks speculating on the financial markets in 2007 face major disappointment when they look at their results and realize how tough it's been to make money.

Sadly, most traders follow the same worn-out strategy over and over again, regardless of market conditions. They just buy upside momentum and hang on, hoping the bottom doesn't drop out of their positions. But as we know in this volatile trading year, almost every sharp move higher or lower has been followed by a vicious counterswing.

It's easy to dismiss this ragged price action, believing it's just an aberration in an otherwise perfect bull market, but nothing could be further from the truth. In reality, a choppy and dangerous tape is the most common environment in which traders need to risk their capital and book results.

That's why the concept of market-timing is so important. Regardless of short-term conditions, every position is forced to negotiate a minefield of conflicting time elements in order to book profits. Simply stated, it's the gateway through which you take on monetary and emotional risk.

So what's the best timing strategy for your next trade? Unfortunately, the correct answer changes over time. As a result, market players must plan each trade within the context of the current environment, reward-to-risk profile and pre-chosen holding period . The good news: This extra effort pays off handsomely on their bottom lines.

Had a tough year picking your fights and choosing your exits in 2007? Well, it's time to shake it off and get ready for the new year. To help you get things started on the right foot, here are 10 things you can do to improve your market-timing.