What does "market timing" refer to in mutual fund trading?

Market timing refers to the strategy of buying and selling mutual fund shares based on predictions about future market movements, specifically aiming to exploit short-term price fluctuations. The idea behind this approach is to enter the market at a low point and sell during a peak, thus maximizing profits from these ephemeral market inefficiencies.

This practice is often associated with rapid trading activities, where investors attempt to buy low and sell high within a brief timeframe, responding to changes in market conditions or breaking news that might influence asset prices. Investors who engage in market timing rely heavily on market analysis and risk assessment to make decisions that are intended to provide quick returns rather than focusing on long-term investment strategies.

The other options do not encapsulate the essence of market timing. Long-term gains suggest a buy-and-hold strategy that is more aligned with systematic investing rather than reactive trading. Trading based on dividend announcements refers to a specific reaction to a company's performance rather than market movements overall. Fixed trading at specified intervals characterizes a systematic approach, such as dollar-cost averaging, which lacks the speculative component inherent to market timing.