If you have chosen market timing as a long term strategy for your portfolio then cash is a way to preserve your capital during market corrections. Parking your money in cash is a position just like being invested in the market is a position.
Some people become impatient when their money is in cash because they feel it is not yielding any return and that they should be invested in something. They tend to chose cash as a position only when they are fearful about market down turns.
When the media is all positive about the stock market investors can get emotional and feel that they must get on the band wagon. They usually buy when the news is good and sell when the news is bad and fear in the market. For example, at the moment it seems that the bubble has burst in the bond market and no one is interested in bonds. Some want to put their money into equities and they don’t consider cash as an alternative position. The savvy strategy is to do the opposite of the herd and not to get caught up in emotions of fear or greed.
Markets do not go straight up – they have corrections. Avoid getting caught in an emotional roller coaster. You can increase your rate of return by following a disciplined timing system. The best traders have three rules: don’t try to catch the bottom or the top; catch the meat of the run; and, most importantly, minimize your losses. And when your rules call for staying on the sideline then cash is the position.