A Trader’s Self-Evaluation Checklist
Brett N. Steenbarger, Ph.D.
What is the quality of your self-talk while trading? Is it angry and frustrated; negative and defeated? How much of your self-talk is market strategy focused, and how much is self-focused? Is your self-talk constructive, and would you want others to be talking with you that way while you’re trading?
What work do you do on yourself and your trading while the market is closed? Do you actively identify what you’re doing right and wrong in your trading each day—with specific steps to address both—or does your trading business lack quality control? Markets are ever changing; how are you changing with them?
How would your trading profit/loss profile change if you eliminated a few days where you lacked proper risk control? Do you have and strictly follow risk management parameters?
Does the size of your positions reflect the opportunity you see in the market, or do you fail to capitalize on opportunity or try to create opportunities when they’re not there?
Are trading losses often followed by further trading losses? Do you end up losing money in “revenge trading” just to regain money lost? Do you finish trading prematurely when you’re up money, failing to exploit a good day?
Do you cut winning trades short because, deep inside, you don’t think you’ll be able to make large profits? Do you become stubborn in positions, turning small losers into large ones?
Is trading making you happy, proud, fulfilled, and content, or does it more often leave you feeling unhappy, guilty, frustrated, and dissatisfied? Are you having fun trading even when it’s hard work?
Are you making trades because the market is giving you opportunity, or are you placing trades to fulfill needs—for excitement, self-esteem, recognition, etc.—that are not being met in the rest of your life?
Are you seeking trading success as a part-time trader? Would you be seeking success as a surgeon, professional basketball player, or musician by pursuing your work part-time?
Can you identify the specific edges you possess over the many other motivated, interested traders that fail to achieve success in the markets? Do you really have an edge, and—if so—what are you doing to maintain it?
Brett N. Steenbarger, Ph.D. is Director of Trader Development for Kingstree Trading, LLC in Chicago and Clinical Associate Professor of Psychiatry and Behavioral Sciences at SUNY Upstate Medical University in Syracuse, NY. He is also an active trader and writes occasional feature articles on market psychology for a variety of publications. The author of The Psychology of Trading (Wiley; January, 2003), Dr. Steenbarger has published over 50 peer-reviewed articles and book chapters on short-term approaches to behavioral change. His new, co-edited book The Art and Science of Brief Therapy is a core curricular text in psychiatry training programs. Many of Dr. Steenbarger’s articles and trading strategies are archived on his website, www.brettsteenbarger.com
Friday, May 12, 2006
Thursday, May 11, 2006
JSDA - Jones Soda Co.
Man oh man! Sometimes you know the feeling. I should have bought this one. I can remember doing stock screens several years ago looking that this one JSDA. I also have to admit I am a big fan of the not only the niche drinks, the designs, but I love the pictures on every bottle and can! It's just a cool, great idea, and I really sort of became a fan of Jones Soda! Not to mention that they just taste flat out the best!
But, moving on into the investing world. Let's take a close look at this one. Some are saying it's to high, others are saying it's a strong buy!
JSDA did break out of the handle with a nice long volume bar on 4/28. It then traveled sideways with some uncertainties through earnings. Today signifies AMAZING strenght in the breakout and I predict JSDA to keep a VERY VERY strong uptrend in order. If any sort of good news gets released we blow past $15 in no time. Personally I would say it's a strong buy even at 10.22... I AIN'T SCARED! But like always do your own research on this one, and let us know what what you think or decide!
Another note is that JSDA is expensive. Companies that have the potential to grow exponentially are always expensive. For every one of these stocks that end up justifying the most bullish predictions, there are 4 or 5 that completely disappoint the bulls. But, speculators will pay up for the chance at a home run. Last time I looked, JSDA didn't do any bottling for themselves; they contract it out. Likewise the frozen supermarket treats. That means there are virtually NO LIMITS to JSDA as it ramps up. They have a powerful brand and image which they are leveraging in all kinds of creative ways. They have lots of cash. No debt. And most of all the people at the top of the corporation seem to really be having a GOOD TIME!!!! That is priceless.
Will JSDA defy the odds and hit a home run? Will it be the one out of five?
So long as Jsda grows revenues 20%+ and the beverage industry is considered sexy and ripe for consolidation with examples of Snapple and Sobe among others in investors' minds and Hans going parabolic, JSDA -- with successful niches, great DTR accounts, a good balance sheet and exploitable patents, will likely remain hot.
But, moving on into the investing world. Let's take a close look at this one. Some are saying it's to high, others are saying it's a strong buy!
JSDA did break out of the handle with a nice long volume bar on 4/28. It then traveled sideways with some uncertainties through earnings. Today signifies AMAZING strenght in the breakout and I predict JSDA to keep a VERY VERY strong uptrend in order. If any sort of good news gets released we blow past $15 in no time. Personally I would say it's a strong buy even at 10.22... I AIN'T SCARED! But like always do your own research on this one, and let us know what what you think or decide!
Another note is that JSDA is expensive. Companies that have the potential to grow exponentially are always expensive. For every one of these stocks that end up justifying the most bullish predictions, there are 4 or 5 that completely disappoint the bulls. But, speculators will pay up for the chance at a home run. Last time I looked, JSDA didn't do any bottling for themselves; they contract it out. Likewise the frozen supermarket treats. That means there are virtually NO LIMITS to JSDA as it ramps up. They have a powerful brand and image which they are leveraging in all kinds of creative ways. They have lots of cash. No debt. And most of all the people at the top of the corporation seem to really be having a GOOD TIME!!!! That is priceless.
Will JSDA defy the odds and hit a home run? Will it be the one out of five?
So long as Jsda grows revenues 20%+ and the beverage industry is considered sexy and ripe for consolidation with examples of Snapple and Sobe among others in investors' minds and Hans going parabolic, JSDA -- with successful niches, great DTR accounts, a good balance sheet and exploitable patents, will likely remain hot.
Saturday, May 06, 2006
C - A - N - S - L - I - M
one with 10 million shares, with all other factors equal, the smaller one will usually be the bigger mover. Stocks that have a large percentage owned by top management are generally better prospects. Again referencing O'Neil's 38 year study, more than 95% of the companies had less than 25 million shares outstanding when they had their greatest period of earnings improvement and stock price performance.
Foolish stock splits can hurt a stock's performance. Watch out for companies that split their stock 2 or 3 times in just a year or two. The splitting creates a larger supply and may make a company's stock performance more lethargic, like many "big cap" companies. Large holders who thinking of selling are often inclined to sell their 100,000 share positions before a 3-for-1 split would have them looking to sell 300,000. Smart short sellers (an infinitesimal group) pick on stocks beginning to falter after enormous price runups and splits, realizing that the potential number of shares for sale (particularly by funds) has dramatically been increased.
C - A - N - S - L - I - M
L = Leader
People often buy stocks they're comfortable and familiar with, like an old pair of shoes. Usually these are draggy slow-pokes rather than leaping leaders. It is really important to look at how your stock is performing in relation to the overall market. The 500 best performing stocks from 1953 to 1990 averaged a relative price strength of 87 (scale of 1-99) just before they began their major advances in price. Avoid laggard stocks and look for genuine leaders.
C - A - N - S - L - I - M
I = Institutional Sponsorship
It takes big demand to move a stock significantly higher in price. Institutional buyers are the most powerful source. You don't need a large number of institutional owners, but should have at least a few. No institutional sponsorship in a stock is a bad sign because odds are that many institutional investors looked at the stock and passed it over. The things we are looking for with C-A-N-S-L-I-M are really signs that the bigger money (mutual funds, banks, insurance companies, pension funds, etc.) is coming into the stock. See that there is a better-than-average performance record by at least a few of the institutional owners.
Another good thing about some institutional sponsorship is that it provides buying support for the stock. Beware of stocks that become "overowned". By the time performance is so obvious that almost all institutions own it, it is probably too late. Pay attention to whether the number of institutional owners is increasing or decreasing.
C - A - N - S - L - I - M
M = Market Direction
You can be right on everything else, but if you are wrong about the direction of the broad market you are still likely to lose money. The best way to analyze the overall market is to follow and understand every day what the general averages are doing. The difficult to recognize, but meaningful changes in the behavior of the market averages at important turning points is the best indicator of the condition of the whole market.
What signs should you look for to detect a market top? On one of the days in the uptrend, the total volume for the market will increase over the preceding day's high volume, but the Dow's closing average will show stalling action, or substantially less upward movement, than on prior days.
The spread between the daily high and low of the market index will likely be a bit larger than on the earlier days. Normal market liquidation near the market peak will only occur on one or two days, which are part of the uptrend. The market comes under distribution while it is advancing! This is one of the reasons so few people know how to recognize distribution (selling).
Immediately following the first selling near the top, a vacuum exists where volume may subside and the market averages will sell off for four days or so. The second, and probably the last early chance to recognize a top reversal is when the market attempts it's first rally, which it will always do after a number of days down from it's highest point. If this first attempt to bounce back follows through on the third, fourth, or fifth rally day either on decreased volume from the day before, or if the market average recovers less than half of the initial drop from it's former peak to the low, the comeback is feeble and sputtering when it should be getting strong. Frequently the first attempt at a rally during the beginning of a downtrend will fail abruptly. Possibly after a one day resurgence, the second day will open up strong, only to sell off toward the end of the day and suddenly close down.
After an advance in stocks for a couple of years, the majority of the original price leaders will top, and you can be fairly sure the overall market is going to get into trouble. It is very important to pay attention to the way the leading stocks are acting.
C - A - N - S - L - I - M
Foolish stock splits can hurt a stock's performance. Watch out for companies that split their stock 2 or 3 times in just a year or two. The splitting creates a larger supply and may make a company's stock performance more lethargic, like many "big cap" companies. Large holders who thinking of selling are often inclined to sell their 100,000 share positions before a 3-for-1 split would have them looking to sell 300,000. Smart short sellers (an infinitesimal group) pick on stocks beginning to falter after enormous price runups and splits, realizing that the potential number of shares for sale (particularly by funds) has dramatically been increased.
C - A - N - S - L - I - M
L = Leader
People often buy stocks they're comfortable and familiar with, like an old pair of shoes. Usually these are draggy slow-pokes rather than leaping leaders. It is really important to look at how your stock is performing in relation to the overall market. The 500 best performing stocks from 1953 to 1990 averaged a relative price strength of 87 (scale of 1-99) just before they began their major advances in price. Avoid laggard stocks and look for genuine leaders.
C - A - N - S - L - I - M
I = Institutional Sponsorship
It takes big demand to move a stock significantly higher in price. Institutional buyers are the most powerful source. You don't need a large number of institutional owners, but should have at least a few. No institutional sponsorship in a stock is a bad sign because odds are that many institutional investors looked at the stock and passed it over. The things we are looking for with C-A-N-S-L-I-M are really signs that the bigger money (mutual funds, banks, insurance companies, pension funds, etc.) is coming into the stock. See that there is a better-than-average performance record by at least a few of the institutional owners.
Another good thing about some institutional sponsorship is that it provides buying support for the stock. Beware of stocks that become "overowned". By the time performance is so obvious that almost all institutions own it, it is probably too late. Pay attention to whether the number of institutional owners is increasing or decreasing.
C - A - N - S - L - I - M
M = Market Direction
You can be right on everything else, but if you are wrong about the direction of the broad market you are still likely to lose money. The best way to analyze the overall market is to follow and understand every day what the general averages are doing. The difficult to recognize, but meaningful changes in the behavior of the market averages at important turning points is the best indicator of the condition of the whole market.
What signs should you look for to detect a market top? On one of the days in the uptrend, the total volume for the market will increase over the preceding day's high volume, but the Dow's closing average will show stalling action, or substantially less upward movement, than on prior days.
The spread between the daily high and low of the market index will likely be a bit larger than on the earlier days. Normal market liquidation near the market peak will only occur on one or two days, which are part of the uptrend. The market comes under distribution while it is advancing! This is one of the reasons so few people know how to recognize distribution (selling).
Immediately following the first selling near the top, a vacuum exists where volume may subside and the market averages will sell off for four days or so. The second, and probably the last early chance to recognize a top reversal is when the market attempts it's first rally, which it will always do after a number of days down from it's highest point. If this first attempt to bounce back follows through on the third, fourth, or fifth rally day either on decreased volume from the day before, or if the market average recovers less than half of the initial drop from it's former peak to the low, the comeback is feeble and sputtering when it should be getting strong. Frequently the first attempt at a rally during the beginning of a downtrend will fail abruptly. Possibly after a one day resurgence, the second day will open up strong, only to sell off toward the end of the day and suddenly close down.
After an advance in stocks for a couple of years, the majority of the original price leaders will top, and you can be fairly sure the overall market is going to get into trouble. It is very important to pay attention to the way the leading stocks are acting.
C - A - N - S - L - I - M
Thursday, May 04, 2006
Did you know about your 401K?
Roth 401K accounts are going to be available as of 2006. The limits as to what you can deposit into a 401K are much higher than what you can put into an IRA; I think the limit this year was $4500 for an IRA and something like $12,500 for a 401K. The deposit limits for a Roth 401K for 2006 will be $15,000. So you would have to earn enough to max it out, but imagine putting $15,000 per year into an account that can grow tax free until retirement.
Even if you're just able to put in $10,000 a year into a 401K making just 5%, in twenty years you would have $330,660 to withdraw tax free. $200,000 of that is deposits, the remainder is earned interest, so you got $130,660 in returns tax free. That's at 5%. If you increase that to 10% the numbers jump to $572,750. And that is interest paid yearly. If you deposit $1,000 per month ($12,000 per year) and earn 10% interest compounded monthly the number grows to $759,368.84. Shocked Even at 5% compounded monthly with $1,000 monthly deposits and 5% return you would have $411,033.67 after 20 years.
A Roth IRA limited to $5,000 per year deposits in twenty years at 10% annually is worth $286,375. A Roth 401K with the larger contribution limits would be very cool. Cool
Even if you're just able to put in $10,000 a year into a 401K making just 5%, in twenty years you would have $330,660 to withdraw tax free. $200,000 of that is deposits, the remainder is earned interest, so you got $130,660 in returns tax free. That's at 5%. If you increase that to 10% the numbers jump to $572,750. And that is interest paid yearly. If you deposit $1,000 per month ($12,000 per year) and earn 10% interest compounded monthly the number grows to $759,368.84. Shocked Even at 5% compounded monthly with $1,000 monthly deposits and 5% return you would have $411,033.67 after 20 years.
A Roth IRA limited to $5,000 per year deposits in twenty years at 10% annually is worth $286,375. A Roth 401K with the larger contribution limits would be very cool. Cool
Warren Buffet has his own cartoon!
That's right Warren Buffet hasa new kids series while Buffet gets animated. This new kids' series, “The Secret Millionaire’s Club,” will feature the words, voice and likeness of Warren Buffett.
Billionaire Warren Buffett, the master mind of investments through ages and through the worldwide. He is staring in a DVD series as a cartoon version of himself, dispensing advice to children ages five to 12.
The series, will feature the words, voice and likeness animations of Buffett, who is known as the investment guru investor and runs the company Berkshire Hathaway.
Check out the full story here at msnbc
Billionaire Warren Buffett, the master mind of investments through ages and through the worldwide. He is staring in a DVD series as a cartoon version of himself, dispensing advice to children ages five to 12.
The series, will feature the words, voice and likeness animations of Buffett, who is known as the investment guru investor and runs the company Berkshire Hathaway.
Check out the full story here at msnbc
Wednesday, May 03, 2006
Mark-to-Market Election
If you are a full time trader, you can make a "Mark-to-Market"
election with the IRS, which changes your accounting method. There are
benefits and drawbacks which each individual needs to determine what's
best for them and their circumstances.
With mark-to-market, you're not limited to a $3,000 capital loss each
year, all your losses can be used. This can be helpful if you have
other sources of income it could offset. There are also expense
benefits. But all income is ordinary, and you give up the long term
15% gain benefit.
Another benefit is not having to mess with keeping track of wash
sales, however, I use software that takes care of all that, and
generates a sch. D, so it's completely painless (except for the cost
of the software that is). I just import all my trades, usually weekly,
sometimes more or less often, and I can see exactly where I stand for
the year. It generates graphs of all sorts, and detail and summary
reports to help you see what you're doing right or wrong. I don't have
a lot of expenses, or losses (knock on wood), so the mark-to-market
election isn't right for me.
Save More Taxes With a Mark-to-Market Election
As a trader, you can also make the special "mark-to-market" election.
If you do, two very important tax benefits come your way.
First, you don't have to worry about the wash sale rule, which defers
the tax loss when you buy the same stock within 30 days before or
after a loss sale. If you make lots of trades, this can happen all the
time. The disallowed wash sale loss gets added to the basis of the
shares that caused the problem. In other words, with the
mark-to-market election you won't have to spend as much time on
bookkeeping as you do researching and trading stocks.
You are also exempt from the $3,000 annual limit on net capital
losses. Why? Because as a mark-to-market trader, all your trading
gains and losses are considered "ordinary," just like garden-variety
business income and expenses. If you have a biblically awful year, you
can deduct your trading losses when you would otherwise be limited to
a mere $3,000 writeoff. The tax savings should ease your pain.
Naturally, there's a price for these goodies. On the last trading day
of the year, you as a mark-to-market trader must pretend to sell your
entire trading portfolio at market and book all the resulting gains
and losses on your return. You then pretend to buy everything back at
the same price. So your stocks start off the new year with basis equal
to market value and no unrealized gains or losses.
Also, you can't take advantage of the 15% long-term capital gains rate
for stocks in your trading portfolio. However, this really isn't a
problem because you shouldn't have anything but short-timers in your
trading stable anyway.
election with the IRS, which changes your accounting method. There are
benefits and drawbacks which each individual needs to determine what's
best for them and their circumstances.
With mark-to-market, you're not limited to a $3,000 capital loss each
year, all your losses can be used. This can be helpful if you have
other sources of income it could offset. There are also expense
benefits. But all income is ordinary, and you give up the long term
15% gain benefit.
Another benefit is not having to mess with keeping track of wash
sales, however, I use software that takes care of all that, and
generates a sch. D, so it's completely painless (except for the cost
of the software that is). I just import all my trades, usually weekly,
sometimes more or less often, and I can see exactly where I stand for
the year. It generates graphs of all sorts, and detail and summary
reports to help you see what you're doing right or wrong. I don't have
a lot of expenses, or losses (knock on wood), so the mark-to-market
election isn't right for me.
Save More Taxes With a Mark-to-Market Election
As a trader, you can also make the special "mark-to-market" election.
If you do, two very important tax benefits come your way.
First, you don't have to worry about the wash sale rule, which defers
the tax loss when you buy the same stock within 30 days before or
after a loss sale. If you make lots of trades, this can happen all the
time. The disallowed wash sale loss gets added to the basis of the
shares that caused the problem. In other words, with the
mark-to-market election you won't have to spend as much time on
bookkeeping as you do researching and trading stocks.
You are also exempt from the $3,000 annual limit on net capital
losses. Why? Because as a mark-to-market trader, all your trading
gains and losses are considered "ordinary," just like garden-variety
business income and expenses. If you have a biblically awful year, you
can deduct your trading losses when you would otherwise be limited to
a mere $3,000 writeoff. The tax savings should ease your pain.
Naturally, there's a price for these goodies. On the last trading day
of the year, you as a mark-to-market trader must pretend to sell your
entire trading portfolio at market and book all the resulting gains
and losses on your return. You then pretend to buy everything back at
the same price. So your stocks start off the new year with basis equal
to market value and no unrealized gains or losses.
Also, you can't take advantage of the 15% long-term capital gains rate
for stocks in your trading portfolio. However, this really isn't a
problem because you shouldn't have anything but short-timers in your
trading stable anyway.
Tuesday, May 02, 2006
Simple as supply and demand just like economics in high school
Supply and Demand just like economics in high school
It's really not rocket sciences. Just like what you learned in High School in that basic economics class, when stocks are in demand the price usually the key word being USUALLY should be going up. The way to check the supply and demand is by simply watching the daily trading volume of the stock. The stocks raising price should be followed or coincide with volume. This which in fact should show a good buying power move for the stock. The same should go with the other end, say if the stock is less in demand or when the price falls so come the volume of the daily trading volume. It's really something to be aware of, and check in for yourself.
Key thoughts when looking at economics in high school supply and demand of a stock:
- Beware of the daily volume of the stock. We suggest that you don't even touch a stock that has less then a daily average of 500,000 volume.
- Stocks that are really moving should show a volume increase of 100% or even more in some cases.
- When a insider buying or companies buying back their stock in the open market could be a green light that this stock is a winner.
- Watch the past 50 trading days. So if a stock is trading 1,000,000 on the average, and then it starts showing a volume increase and starts trading at 1,500,000 this is a good indication this could be a green light.
One key note to really make sure and check into is. When a stock with low volume, but the stock is still going up in price, this is a yellow if not a red flag to be looking into. This means the stock is moving probably on news strictly and not really supply and demand. So the usually the winning stocks are the ones with a strong demand and then have the price increasing to follow.
It's really not rocket sciences. Just like what you learned in High School in that basic economics class, when stocks are in demand the price usually the key word being USUALLY should be going up. The way to check the supply and demand is by simply watching the daily trading volume of the stock. The stocks raising price should be followed or coincide with volume. This which in fact should show a good buying power move for the stock. The same should go with the other end, say if the stock is less in demand or when the price falls so come the volume of the daily trading volume. It's really something to be aware of, and check in for yourself.
Key thoughts when looking at economics in high school supply and demand of a stock:
- Beware of the daily volume of the stock. We suggest that you don't even touch a stock that has less then a daily average of 500,000 volume.
- Stocks that are really moving should show a volume increase of 100% or even more in some cases.
- When a insider buying or companies buying back their stock in the open market could be a green light that this stock is a winner.
- Watch the past 50 trading days. So if a stock is trading 1,000,000 on the average, and then it starts showing a volume increase and starts trading at 1,500,000 this is a good indication this could be a green light.
One key note to really make sure and check into is. When a stock with low volume, but the stock is still going up in price, this is a yellow if not a red flag to be looking into. This means the stock is moving probably on news strictly and not really supply and demand. So the usually the winning stocks are the ones with a strong demand and then have the price increasing to follow.
Monday, May 01, 2006
The weekend in review
Mircosoft news
Well, the big news is Microsoft. That's right after falling not really off the charts so to speak, but for Microsoft. It sure did fall pretty hard and fast after it's quarter results. Some are saying it's a buy, it's low, and it's a big and yours stupid if you don't buy this one at the market. Which should be opening right around 24.20 or somewhere around there. Which is a very low price for MSFT, but others are saying wait a minute rememeber this one....Gateway Inc. (GTW)! Some are saying just be aware that believe or not even Microsoft could fall pretty low. Though, with the new Xbox or xbox 360 or whatever it's called. I don't see Microsoft falling to low, but who really knows. It's up to you and what you want to invest in!
Gold
Gold sector is still the hot. You can say it's as hot as gold or something like that! This sector is still one to be investing and has shot up like no other. Don't mark our word, but everyone elses....that's right it's still on up! Part of what's driving the prices is the strong global economy -- it's partly China and now also Japan, as well as continued growth in the U.S.
Gas prices
Gas prices are still going up as well. Though, that said, there is a one single question that everyone is still wanting answers.
If the gas prices keep going up, how is that oil companies, gas companies, and etc keep making money and going up as well!
Well, the big news is Microsoft. That's right after falling not really off the charts so to speak, but for Microsoft. It sure did fall pretty hard and fast after it's quarter results. Some are saying it's a buy, it's low, and it's a big and yours stupid if you don't buy this one at the market. Which should be opening right around 24.20 or somewhere around there. Which is a very low price for MSFT, but others are saying wait a minute rememeber this one....Gateway Inc. (GTW)! Some are saying just be aware that believe or not even Microsoft could fall pretty low. Though, with the new Xbox or xbox 360 or whatever it's called. I don't see Microsoft falling to low, but who really knows. It's up to you and what you want to invest in!
Gold
Gold sector is still the hot. You can say it's as hot as gold or something like that! This sector is still one to be investing and has shot up like no other. Don't mark our word, but everyone elses....that's right it's still on up! Part of what's driving the prices is the strong global economy -- it's partly China and now also Japan, as well as continued growth in the U.S.
Gas prices
Gas prices are still going up as well. Though, that said, there is a one single question that everyone is still wanting answers.
If the gas prices keep going up, how is that oil companies, gas companies, and etc keep making money and going up as well!
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