Why investors enter a strategy at the wrong time

Why entry timing matters

Even a high-quality investment strategy can deliver weak results if the entry point is poorly timed.

This is less about the strategy itself and more about how investors make decisions. In practice, entry timing is often driven not by analysis, but by emotions and recent performance.

How investors make decisions

In most cases, decisions are influenced by:

• recent performance of the strategy
• expectations of continued growth
• news flow and overall market sentiment

When a strategy shows strong returns, it is perceived as “reliable.” When a drawdown occurs, interest in it drops sharply.

The “performance chasing” effect

One of the most common mistakes is entering after a period of high returns.

At that point:

• a significant portion of the move has already occurred
• the market may be transitioning into a different phase
• the probability of a correction increases

As a result, the investor captures not the growth, but the subsequent decline or stagnation.

Why drawdowns are perceived as risk

A drawdown is almost always seen as a negative signal.

However, within a robust strategy, it is a natural part of the process. Any system with positive expected value goes through periods of temporary decline.

The issue is that investors interpret drawdowns as a “failure” of the strategy, while in reality, it may simply be a normal phase of its operation.

Drawdown as an entry point

From a mathematical and probabilistic perspective, drawdowns are often a more rational entry point.

Reasons include:

• the strategy is below its previous highs
• potential recovery offers a better risk/reward ratio
• compounding works more effectively from a lower entry base

That said, this applies only to strategies with stable statistics and a validated model.

Example

Consider a simplified scenario:

A strategy shows the following performance:

• +40% growth
• followed by a −15% drawdown
• then recovery and new highs

Investor A enters after the +40% growth.
Investor B enters during the −15% drawdown.

Even if future performance is identical:

• Investor A first experiences a decline
• Investor B participates in the recovery

The difference in entry point directly impacts both returns and perception of the strategy.

Mismatch between expectations and reality

Investors often expect a strategy to generate profits immediately after entry.

In reality:

• returns are unevenly distributed
• periods of gains and losses alternate
• a significant portion of results is not immediate

When expectations don’t match reality, investors tend to exit prematurely.

Why this keeps happening

A typical investor behavior cycle looks like this:

1. The strategy shows strong performance
2. It attracts attention
3. Entry occurs near local highs
4. A correction or sideways movement begins
5. The investor locks in losses or becomes disappointed

This makes the mistake not random, but systemic.

The role of market phases

Any strategy goes through different market conditions:

• trends
• corrections
• high volatility periods
• uncertainty phases

Entering a strategy at different stages can lead to very different outcomes, even if the model itself remains unchanged.

The approach of professional investors

Professional investors reduce the impact of timing by:

• maintaining a long-term horizon
• entering strategies gradually
• focusing on statistical performance rather than short-term results

In this approach, drawdowns are not seen as a threat, but as part of the normal distribution of returns.

The IQ Security Fund approach

At IQ Security Fund, strategies are viewed as probabilistic models operating over the long term.

This implies:

• accepting drawdowns as a natural component
• avoiding focus on short-term performance
• evaluating effectiveness through statistics and risk

Within this framework, entry timing is not based on current returns, but considered in the context of the entire model.

How investors can reduce timing risk

To make more objective entry decisions, it is important to:

• analyze long-term statistical performance
• avoid focusing on recent results
• recognize that drawdowns are normal
• use gradual capital allocation

This approach reduces dependence on a specific entry point.

Conclusion

Investors most often enter strategies at the wrong time not due to lack of information, but due to behavioral biases.

Growth attracts attention, while drawdowns repel it.
However, from a probabilistic standpoint, the opposite is often true.

In practice, periods of decline frequently offer more rational entry points, while entering at peak performance increases the risk of short-term losses.

In the long run, results are determined not by the exact entry moment, but by the investor’s ability to follow a systematic approach and correctly interpret the behavior of the strategy.