During holiday-shortened weeks such as this one, trading volume slows as investors hit the beach. Most of us (including me) are packing the coolers, chaise lounge chairs, and kids into the car.

Now’s an opportune time to step back and examine a few investment truisms.

The great traders such as Warren Buffett govern their buying-and-selling activity through patience and the dispassionate application of value criteria, but they also observe crucial signs when the market is about to rise or fall.

“Timing the market” refers to trying to predict the best times to buy and sell stocks to maximize profits. This strategy often involves making decisions based on short-term price movements and market trends. Trying to time the market is widely considered to be a fool’s errand.

However, while I generally discourage investors from trying to time the market, making informed, proactive decisions based on expected price fluctuations is a more sensible strategy.

In today’s especially risky investment climate, you can stay a step ahead of the game by learning these proven market-timing indicators. They’ll help you ride the bull, and beat the bear:

1. Buy when the stock market is showing the classic signs of bottoming out (and sell when the market is at a top).

Seems simple, right? Buy low, sell high. It’s anything but, but here’s a good rule of thumb for identifying the market’s extreme peaks and valleys: Look for extreme behavior.

Classic signs of a bottom include hyperbolic pessimism in the media; extremely high “bear” signals from professional stock analysts; heavy insider buying at corporations; and huge mutual fund cash reserves. On the other hand, if it feels like the market is in a buying frenzy, it’s probably a good time to sell (or hold off on buying). In this vein, Buffett famously explained how he decides when to buy or sell a stock: “Be fearful when others are greedy and greedy when others are fearful.”

2. Follow the “corporate insiders.”

The shrewdest group of investors is the “corporate insiders” — the officers and directors of publicly traded companies. These people know much more about their organizations than an analyst or broker. And to ensure that they aren’t using that knowledge to exploit non-public information, the SEC requires them to report their transactions (which you can find on Yahoo! Finance — just click on “Insider Transactions” button on the left).

Mandatory reporting helps level the playing field for individual investors. Knowing when insiders are buying and selling can be a great indicator of which direction a stock is heading. Think about it: Corporate insiders are the ultimate advisors. They have a very deep and comprehensive understanding of their company and industry. They are intimately involved with all aspects of their company. And just like you and me, it’s in their best interest to buy low and sell high.

So does following insider trading really work? History has shown that stocks heavily purchased by insiders outperform the broader market averages by roughly two-to-one in a bull market and fall only half as far in a bear market. In addition, stocks characterized by heavy insider selling tend to rise only half as much as the market averages when the primary trend is bullish and fall twice as hard when the primary trend is bearish.

Remember, following insider transactions is not as easy as mimicking their every move. Many insiders frequently buy and sell shares for a number of reasons.

3. Buy if the market has gone above the 50- or 200-day average.

The moving average is a great line to judge whether or not a stock is technically healthy. Extremely high averages are a warning that the market is too optimistic, and fresh buyers are rare (because everyone already owns it). When this happens, the market will likely reverse, and the stock will begin to fall.

Conversely, a very low moving average is a signal that a bottom is near. When the stock price starts to rise and finally crosses its low moving average, it’s a very bullish signal. Remember, the shorter the moving average, the sooner you’ll see an actual change in the market.

4. Observe the put/call ratio for signs of frenzied “fast buck” behavior, and bet AGAINST the gamblers.

This tool is a handy contrarian indicator that helps you gauge overall market sentiment. It’s easy to calculate: Just divide the number of traded put options by the number of traded call options.

Speculators buy puts when they anticipate a stock will go down; they buy calls when they anticipate a stock will go up. So the put/call ratio simply measures whether more investors are feeling bearish or bullish. If there are more bearish investors, the ratio will be larger. When the ratio is large enough, it can signal an unwarranted bearish outlook that will soon adjust.

The data used for the put/call calculation is available on the website of the Chicago Board Options Exchange (CBOE). A reading above 0.8 on the 10-day moving average of the CBOE put/call ratio suggests a big buying opportunity; when the ratio drops below 0.4, a big drop in the market is probably imminent.

This article provides only a sampling of the major, most popular market timing indicators. There are many other timing indicators, some of them quite complex. Regardless of which you follow, always remember: No market timing system can compensate for poor stock selection. Only use market timing in conjunction with other fundamental metrics.

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