AAII Stock Screens

Most of you know that I cut my teeth on AAII's Stock Screens. I have been following them for several years and I love their simplicity. Moneysuckle (of the complicated poker post) has put together some information on why he has chosen just a few screens among the several that AAII shares each month. The results he discusses are assuming monthly re-balancing and holding all stocks that qualify in the screen.

Buffet averaged 25-30% a year compounded to amass his fortune. Of course, he dodged a lot of taxes with his buy and hold strategy. I cite this as a baseline to judge the AAII screens.

In order to get a total (pre-tax) return of 1000% over 10 years, you need to average 26% a year. A 1500% return over 10 years is 39% compounded per year. A 2000% 10-year return is 50% per year compounded.

So, when I look at the AAII screens, I am looking for anything with a total return of 1000% or more since 1998 - or returns Buffet would be happy with. I know, of course, that I'll likely be paying 28% cap gains tax on my profits, so I need as much cushion as possible.

The other things I am looking for in these screen results:

1. Consistency in returns. If a screen has a 1200% total return, but has 6 winning years and 4 losing years, that's not as attractive to me as a 1200% screen with 9 winning years and 1 losing year. When a screen has a big return but several losing years, it implies that it is not suitable for use in all market conditions.

2. No horrible years. I consider a horrible year a double digit loser.

3. Emphasis on recent performance. If a screen has a great total return, but 1998-1999 played a big role in it and recently it hasn't done as well, I will downgrade the screen.

4. 15 or less qualifying stocks on average. I don't want to invest in more than 20 positions at a time, and I am really interested in 6-12 positions at a time. Therefore, a screen that gives me 45 qualifying stocks on average is of marginal use. Further, if I think I can screen the screen (like with Zacks rankings), then the more stocks I am screening out with Zacks, the more the AAII total return % becomes meaningless since I am doing something completely different than AAII did. Finally, if I invest the same in each stock, if I use a screen that produces 45 stocks and 1 that produces 15, I will end up weighting the 45 screen more. Which is probably bad since Zweig and CANSLIM have the best results, and they produce fewer stocks.

With that in mind, let's examine the candidates.

Currently, Graham Enterprising Investor is at 923%. It produces 4 qualifying stocks per month. It lost money in 1998 and 1999. While the losses were small (single digit), the market had great years in 1998 and 1999. Thus, this screen vastly underperformed the market in those years. It has vastly outperformed the market since. In fact, from 2000-2007, it's total return is 1109% (which is over 50% per year compounded for 8 years!!). This tells me that the screen works well in periods when fundamentals matter. Fundamentals didn't matter much in 1998-99 - it was mania. Finally, the screen is up this year! I will use this screen for current market conditions.

Foolish Small Cap 8 Revised - 623.1%. Through 2007, this screen was very impressive at nearly 1000% 10-year total return. Plus, it had 9 winning years in 10. It's only loss was small (3.9% in 2004). Otherwise, it made at least 12% every year. Very consistent. Plus, it produces only 7 passing stocks a month on average. However, this year, it is down 35%. Until I can figure out what's going on, I am not planning on using this screen. I am going to keep an eye on it, however.

O'Shaughnessy Growth - 652%. Another very consistent screen. 10 straight winning years of at least 10% gains. Until this year (down 13%). But it produces 50 stocks per month. Not suitable for my purposes, but I will watch it.

O'Shaughnessy Small Cap Growth & Value 985% - Another impressive screen. 9 excellent years and flat in 2002. But it's losing this year (down 13%). Plus it produces 25 stocks a month. Not suitable for my purposes, but I will watch it.

O'Shaughnessy Tiny Titans - 2262%. Awesome total return. But poor recent performance. $100 invested in Jan 2005 would be $114 today. Clearly, the weakening dollar has helped the larger companies recently (who have international operations) at the expense of small domestic companies. This may explain the drop off in performance. Plus, it produces 25 stocks a month - too many for my purposes.

Value on the Move - PEG with Est Growth - 833%. Another 1000% winner with 10 straight winning years until 2008 (down 15%). After a poor 1998-99, it made 970% from 2000-2007 or 49% compounded, which is incredible. But it produces an average of 47 stocks a month. Not suitable for my current purposes.

Zweig - 2107%. By far the best, most consistent screen on AAII from 1998-2007. Never returned less than 17% a year. 10 straight winning years in all sorts of market conditions. Until this year. I am willing to forgive it 2008 (down 12%). I am also willing to forgive the "slowdown" from 2005-07 when it "only" earned 18-27% a year. However, I am keeping my eye on Zweig to make sure it doesn't go south on me. Produces 15 stocks a month on average, in my sweet spot. I will use Zweig.

CANSLIM - 1471%. Excellent total return. Very consistent. 9 winning years of at least 20% a year vs. 1 modest losing year (3.8% in 2004). All on 9 stocks a month. Down only 3% this year, which beats the market. My second favorite screen behind Zweig. I will use CANSLIM

Est Rev Up 5% - 1302%. Excellent total return, but got a huge boost in 1998-99. This screen focuses on positive earning surprises, and everyone was buying/selling on news (instead of fundamentals) back in 98-99. Still, had excellent years in 2003-07. But it produces 43 stocks a month. Plus, when I cross-screen Zweig and CANSLIM through Zacks, I get stocks with good earnings surprises. As you might imagine, more of the Est Rev up 5% stocks get 1 ranks in Zacks than Zweig stocks do. So, if I used this screen, I'd be heavily diluting Zweig. I will watch it, but I don't plan to use it.

So, there's my analysis of the screens. I will focus on Zweig, CANSLIM and Graham Enterprising, which should produce a combined ~30 stocks a month. Edited for Zacks 1-2 ranks, that will bring it down to a manageable 6-12 stocks a month.

I plan to fully invest my portfolio each week, and invest in each stock equally. So, at 1% risk, 12 stocks means I need to put a 12% stop loss on, and 6 stocks means I need to put a 6% stop loss on. I saw your 2007 stats. For Zacks 1 + Zweig, your average loss as -3.2% on your losing trades. Therefore, I'd think a 6% stop loss is way sufficient. Unless you had a lot of experience with stocks losing more than 6% off the bat and coming back to be winners. Which I doubt.

Theses are the types of stats that I love to gather for myself. I think that thinking through issues like these often make you a much better trader. I know it has helped me put together my own ideas, and has helped me tremendously during periods of drawdowns.

Trading and Poker

I'm fascinated by the number of traders who also dabble in game playing. Ugly loves chess and games of chance. Chris Perruna thinks that poker has some parallels to trading. Warren Buffet loves to play bridge. And Dr. Van K Tharp enjoys poker playing as well.

I played a few poker games with my brother and a few friends of his at a recent birthday party. It was the first time I had played since playing on my Mattel Intellivision back in the mid-80's. I'm guessing that most StockPunk readers don't even know what an Intellivision is. Whippersnappers. I digress.

I think there are many lessons that poker teaches that can be integrated into a trading system. Issues like drawdowns, bet size, risk, ruin, and probabilities are common to both trading and poker.

One StockPunk reader sent me an interesting and math-intensive article he wrote that utilizes a computation called the Kelly Criterion for poker. The Kelly Criterion is also found in many books about trading systems. The writer asked me to use his cryptic poker playing name which is Moneysuckle.

The Kelly Criterion and Bankroll Management for the Live NL Cash Game Player

By Moneysuckle

After reading Fortune’s Formula, Phil Laak’s interview and Al Kratz’s article in the July issue, I decided to explore the application of the Kelly Criterion http://en.wikipedia.org/wiki/Kelly_criterion to bankroll management for the live cash game no limit hold’em player. 2+2 poster Pzhon illuminated my way.

Here is the formula, in layman’s terms:

((Odds * Chance of winning) - chance of losing) / Odds

Most live game players keep records by session. It is quite easy to figure out:

1. How often you log a winning session,
2. What your average winning session is, and
3. What your average losing session is.

Let's say Player A wins 60% of his sessions, and loses 40% at 5-10 NL. He buys in for $1000 and his average winning session is $2000 while his average losing session is $1200 (because he brings more than one buy-in).

Player A’s odds are 2000:1200 or 1.67:1. In other words, on average, he risks losing $1200 to win $2000. Employing the formula, ((1.67 * 60) – 40) / 1.67 = 36%. So, under the Kelly Criterion, Player A’s bankroll * 36% should equal his average loss ($1200). We use average loss because that's the denominator we used to figure the odds payoff. Player A therefore needs a $3333 bankroll under the Kelly Criterion if these are his true winning stats. At 5-10, this would be three buy-ins!

The problem with full-Kelly is that you have a 13.53% risk of ruin. See http://www.bjmath.com/bjmath/proport/riskpaper1.pdf This risk of ruin is too high for a player dependent on poker for income. If you double the bankroll ("half-Kelly"), you get risk of ruin down to 1.83%. If you quadruple the bankroll (“quarter-Kelly”), then your ROR is down to 0.03% with only a 2% chance of ever losing half your bankroll. Quarter-Kelly bankrolls are therefore conservative and considered appropriate for professional players. But Player A’s quarter-Kelly bankroll for his 5-10 game with these stats would be $13,333 or ~13 buy-ins of $1000!

Bottom line, the wives’ tale advice you hear about having 20-30 buy-ins for a given game is very conservative for a top winning player. Of course, no amount of bankroll is big enough for a losing player, while marginally winning players need much larger bankrolls than solid winning players -- or the customary 20-30 buy-in advice. An example:

Player B plays 5-10 NL too. He buys in for $1000, and wins 52% of his sessions. Player B’s average win is $2000 while his average loss is $1900.

His odds are 2000:1900 or1.05:1. Using the formula, ((1.05 * 52) – 48) / 1.05 = 6.3%. So, at full-Kelly, $1900 (average loss) should be 6.3% of Player B’s bankroll. Bankroll therefore equals $30,158. But full-Kelly has 13.5% risk of ruin. Player B’s quarter-Kelly bankroll would be $120,632 or ~120 buy-ins!

There you have it. Using quarter-Kelly, the top player can operate with 13 buy-ins while the marginal winning player needs 120 buy-ins for the same game.

In reality, most top players operate at bankrolls far greater than quarter-Kelly would require of them, while most marginally winning players operate at bankrolls far short of their quarter-Kelly requirements. This is why many marginally winning players go broke from time to time – they take too much risk of ruin, especially if they like to take shots at bigger games.

Week In Review 4-18-2008

I guess I can't be too cocky about having a good week since everybody and his grandma had (or should have had) one. I don't care. It's still a good feeling when things go your way.

All of the screens posted positive gains this week with To the Moon coming in first. It had a pretty good distribution with STLD being the winner at 7.49%.

Zweig Relative Strength 5 was next on the list with the best showing coming from ARO at 9.37%. AEHR pulled the screen down with a loss of 6.19%.

The Zweig & Zacks combo still leads the pack with a +20% gain for the year. That's looking really good right now. ESL pulled that one down with a 1.81% loss.

The last time my portfolio was down less than 8% was back in mid January. That's a long time to be languishing in the hole.

Dr. Van K. Tharp Training Tapes & DVDs

If you're interested, I'm selling a series of DVD's and cassette tapes from Dr. Van K. Tharp's Institute for trading mastery on E-bay.

The DVD's explain position sizing in very clear terms. I watched them several times and it really helped me formulate a trading strategy. He uses an example of trading from newsletter recommendations that is very revealing about the power of position sizing. You can see the auction here.

The other series is on cassette tape (that makes them retro and therefore really cool). The cassettes took me a long time to get through, but they were very interesting. He basically has a roomful of traders that he teaches the techniques of position sizing, money management, and developing a trading system with a positive expectancy. It's interesting to listen to the experts and compare your own trading to theirs. You can see the auction for the tapes here.

StockPunk Readers

I continually am impressed with the quality of folks who peruse this dumb blog. What are you people thinking? Don't you know I don't really have a clue about what I'm doing?

When people go back and read my previous posts they often become confused about my strategy. There's a good reason for that--I change my strategy often. I don't change it because I'm so smart. I change it because I still am trying to figure this whole thing out (and I have a LONG way to go).

Shaun had the misfortune of wanting to figure out my philosophy and strategy, so he went back and read all of my posts over the past year. He became even more confused (who wouldn't) so he wrote me. He gave me permission to post some of the questions and answers that we went through and I thought it would help the other two people who read this blog (Shaun's questions are in blue):

I'd be happy to answer your question. I think the reason that you are confused about what I do is because I am confusing about what I do. This has been a learning process for me, and I am by no means any sort of expert. I've kind of stumbled into the type of trading I do after taking bits and pieces from experience, books, and blogs.

I've been all over the place in my trading as I've learned new things. Some things have worked very well so I continue using them. Some things were ridiculous, so I quit (probably not soon enough).

I've totally changed the way I trade recently after really starting to understand the concepts of risk and money management. Until recently, I thought trading was all about picking the right stock. This is a gut wrenching game because I had to pick the right stock (usually from a basket of stocks like the Zweig screen). Then I had to buy it at a good price. I struggled getting in at good prices on Monday morning which was always frustrating. Then I needed to figure out how long to hold the stock. Sometimes I'd have a stop, other times I didn't. Sometimes I'd sell the stock unemotionally when it dropped of the Zweig screen. Sometimes I wouldn't sell hoping to squeeze a few more percent out of the stock.

The mechanical approach I had served me well for a couple of years. I think it's a great approach to learn the mechanics of trading. It takes very little time and effort and it can help to manage the emotions of trading (I still struggled with the emotional thing).

But I now think that money and risk management is the key to staying in this game long term and I think that I can really boost my returns and avoid unnecessary risk by utilizing those management tools in my trading.

Currently I am trading stocks in a few different systems. I still use the Zweig screen, but I am also using some technical indicators to make additional trades. I am pretty new to technical analysis, but I am starting to see its value in my trading "package".

>>>In one comment a guy asked what you did with cash since you said you only risked 2% on a trade and wanted to hold 5-10 stocks. You said the rest was in cash. Is that right? If you had a $100,000 account and there were 5 stocks you liked, would you be investing 2% of 100,000 into the 5 stocks, so $10,000 invested and $90,000 in cash? Did I read it right?

The whole risk and position size thing seems simple, but it has taken me over a year to get it figured out. I've probably written some confusing things over the past year as I tried to get things figured out. Here's how it works.

The least complicated way of using a position size with the Zweig screen would look like this. I've got 5 stocks that qualify. I've got $100,000. I determine that I want risk only 1% of that $100,000 on any one trade (a good rule of thumb). That means I RISK $1,000. I determine that a 10% stop works best for my system. So I can buy $10,000 worth of stock with a 10% stop on each one. 5 X $10,000 means $50,000 in positions and $5,000 risked.

>>>>I have been thinking of risking 2% of the account per trade, but saw it as setting a stop that would be 2%*100,000=$2,000 loss max on each of 5 positions. So I'd buy $20,000 in each of the 5 stocks picked, at set price stops for $2,000, which is 10% of the position. What do you think of this method? (I am going to work through the Chris Perunna links that you posted and I plan to read the Van Tharp book that you recommended.)


You’ve got the idea! I recommend you read the Van Tharp book—it’s excellent and thought provoking. I learned a lot more about stop setting and now I’m using a volatility stop rather than a set amount like 10%. It’s less gut wrenching because it seems to have mathematical value.

>>>>>Have you refined your 'volatility system' for taking profits mentioned on October 6th, 2007?

The volatility system was a spreadsheet developed by Henry Ford at Pitbull Investor (I subscribe). It’s a great tool. I also use Average True Range (you can find that out on a StockChart). I use 14 periods and times the result by 2.5 to give me a number that I use for stops.

>>>>What is the "To The Moon" screen? Did I miss its description or is it secret sauce? You mentioned that it relies on Zacks metrics that you will not be able to screen for if you do not renew Research Wizard. Could you use AAII and Zacks Premium to replicate it?

To the Moon incorporates Zacks screens of my creation and elements from the Zweig screen. I really haven’t bought any stocks on that screen for some time because I know that I won’t be renewing my subscription. I’m going to let it die this summer.

>>>Has your view of Zack's Research Wizard changed at all? Last I heard you were not impressed with it, particularly the client service. Maybe the way to go is do a trial once a year?

I’m moving a different direction. I still like the screener, but I want to focus more on technical analysis. I’ll still subscribe to Zacks to get the Zacks number (I think it is a powerful qualifier), but I don’t plan to renew RW.

>>>>I enjoy reading the blog of someone who has trail blazed the path I have set ahead for myself. My results lately on discretionary trading are terrible, so mechanical investing is my future. Now I have to steel myself to dump some losing positions that I hoped would come back, but have learned that hope is a lousy hedge.

I’m glad my dumb blog has kept your interest. Thanks for your contributions! It makes things much more interesting. My goal was to provide a place to put down my thoughts and a place where I could get some feedback on what I was doing. I’ve learned a ton in the last year, but I still have a long way to go.

I think I just got lucky. If I had lost money from the get-go I would have quit doing this a long time ago. Hang in there! Trading is extremely rewarding and fun. You’ll find your grove and things will take off. Just keep learning as much as you can. Turn of the news.

The best thing that I came away with from Van Tharp’s book is that trading stocks is a probability game. Probability and emotions don’t mix, so you need to have a system that takes your emotions completely out of your trading. Otherwise you bias your trading and create all sorts of problems.

Things looks positive so far this morning. Yesterday I lost over a percent, but I'm still happy with the direction things are going. Maybe I'll be out of the hole by the end of the month. That would be swell.

NOW, THAT'S WHAT I'M TALKIN' ABOUT!!

We have an official StockPunk best day ever today. The portfolio was up 5.55%! Nice. That's not the best percent-wise. Way back on May 2nd, 2006 I made 6.03% in one day. I have a lot more money now so this is my best day for dollars gained. Back in 2006 I was betting the whole portfolio on one or two stocks. I had some good days, but my portfolio sure took a licking during the bad times. I've learned a lot since then, thankfully.

The 2nd best day ever dollar-wise isn't that long ago--December 10th 2007. I made 4.65%.

Let's hope this continues, but as I've learned--past performance is not a guarantee of future returns.

Buying Interest

Looks like today could be an interesting day. INTC was inline and most tech stocks should follow. I could use a +1% day and even more would be better. I actually have a bit of time to trade this morning but I'm fully invested right now. I'm thinking about using a bit of margin for one more purchase. I usually don't like using margin (and I don't use it to calculate my position sizes) but I think this is a pretty safe bet. I'll let you know if I was whacked later on today.

Doldrums

My hayfever has kicked into high gear as the market meanders all day. I was up a piddly .10% today. Thanks everyone for the good discussions you've got going. They are much more interesting than my boring posts as of late.

I'm currently doing some tutelage under the watchful eye of Corey Rosenbloom at Afraid to Trade. I've followed his blog for a while now and I have really appreciated his take on the market. He's a lot smarter than I am, and I feel he can teach me a lot. His fees are extremely reasonable, and now is a good time for me to learn some new stuff.

I'll let everyone know how it goes. I truly believe that is important to always hone your trading skills and the stuff that I've paid to learn has (usually) paid for itself several times over. That's more than I can say for most of the education that I've been through in my life.

This week with StockPunk 4-14-08

Things don't look too promising right now. GE is still affecting the world and we could see further downside if more companies chime in missing their estimates.

I'm not taking any new trades today. I plan on holding on to what I have and let the market and my stops give me some direction this week.

Be careful out there!

Taxes

I'm turning in my taxes today. Trading sure creates its share of headaches when it comes to taxes. I've only been trading for 5 years, but I've already got a threatening letter about owing lots of money to the IRS. That was a mistake that I made on my tax forms and I got it cleared up, but it was a hassle.

This year I owe a large sum of money because of my gains last year. It's a little hard writing that check when I've already lost half of those gains. I know that eventually I'll get it back, but paying taxes on money that no longer exists makes me a bit miffed.

I used Gainskeeper which is offered for free when you trade with Scottrade. I like the package and it saves me a ton of time. My federal return was 14 pages and would have taken a ridiculous amount of time if I hadn't been able to download the information into my tax software.

My first house

My family just moved into our new home last week. For the past 10 years we've lived with 8 teenage girls in a group home. While this has provided great cash flow for trading (our housing and food is paid for), we've had very little privacy for a decade.

We still live at the group home, so the new house is like our "vacation home" when we have some time away. I'd forgotten how quiet a home can be when it's just your family there. Nice. It's also much more fun to entertain when you aren't managing the emotional highs and lows of teenage girls while making your guests feel comfy.

Charles Kirk paid off his mortgage this week. It took him less than 5 years. I decided to put nothing down on mine and use the money I would have used on the house for trading. My friends and family think I'm a nutjob, but I think it's worth the risk to eventually be financially free. Once I can live off of trading and pay cash for the house, I'll do it. I do see an advantage to having no payments (the house is our only debt).

Week In Review 4-12-2008

I had a good feeling on Monday about the direction the market was heading, and once again the market has taught me the value of my "feelings". For the week I was down 2.44%.

The Zweig Relative Strength 5 screen was the best "performer" this week with a loss of 1.37%. GHM was the best stock in that screen with a gain of 5.12% while WATG was the worst with a 7.42% loss.

To the Moon was the worst performer for the week with a 2.69% loss.

The Earnings report from GE sure put a damper of what was looking like a decent rally. Hopefully next week will produce some companies who have handily beat earnings. Otherwise we could be in for a nasty month.

No excitement here

My portfolio lost 1.14% today. The market is churning on low volume which makes me a bit unhappy. Initial earnings have been tepid, but next week is the real show. I plan to continue staying fully invested until I feel that it isn't wise anymore.

Another anemic day

Not much going on out there. I ended up the day down .27%. Next week begins the bulk of earnings announcements so we'll see what the real trend will be then.

I wonder if I'll look back on these last few months and remember how chaotic the news made the markets seem. It seems like everyone has a different opinion on what is happening and where things are headed. Will I learn that it will be like this next time and make better decisions? Or is every time different and you can never really predict the future from the past? I haven't been doing this long enough to know.

The folks at Earnings Whispers have an interesting article about the recession and how unemployment numbers may be a positive sign. You have to register at their site, but they have lots of great information. Here's an excerpt:

In January, we projected a 20% decline in the S&P 500 and a 28% decline in the Nasdaq Composite with a bottom between May and October, but we also said we expected the S&P 500 to end the year above 1,300. Now that we have more data about the current recession, we are projecting the S&P 500 to be above 1,500 around August 2008 - up an additional 9.5% from its current level - as long as the employment data continues to weaken and the Fed continues to lower interest rates.

But stock prices dont go up in a straight line so the question is how are we going to get from point A to point B? not to mention the fact that we need to look for confirmation of our thesis along the way as well. This week has the potential to confirm or quickly make us doubt our position as the S&P 500 nears resistance and the CBOE Volatility Index (VIX) hits its support line. All of this suggests that the market is a little top heavy right now and is likely to pullback, but if the uptrend is intact, the S&P 500 could break above resistance and it could be swift. We should also point out that the chart on page one of this report shows declining peaks in our advance/decline oscillator for the Nasdaq Composite while the index has seen rising peaks. This is a sign of near-term weakness.

Disappointment

Things started out very nicely, but I ended up giving back .65%. There seems to be a lot of uneasiness out there and there are a lot of smart people who think we're headed for another downturn. I'm not smart and I think we're headed higher so we'll see who wins in the end.

Nick at Ambitions as a Trader, thinks GHM is a good shorting candidate. You can read his comments here.

This Week with StockPunk

GHM has appeared on the Zweig screen as the number 1 in relative strength. Dang it. I had it on my radar for the past two weeks waiting for a breakout and missed the last 30%+ gain. From my experience with the Zweig screen, it still has upward potential.

Zacks #1 picked 3 stocks out of this week's Zweig screen. KEX is back in the running.

Week In Review 4-04-2008

This was my best week since the first of December. A lot of people told me I was crazy to go full throttle this week. They were probably right, but it turned out OK for me anyway. I had already lost 2/3 of my gains from last year and I was starting to get a little frustrated.

This may just be a pause in the market before it sinks lower. I feeling pretty good that we've established a bottom, but I'm quite ignorant on these matters.

For the week, the Zacks and Zweig screen shined with a 10.45% gain on 3 stocks. NGS gained 19.37% which helped greatly in a this screen and a few of the others. I'm glad I held on through the week. I've been trailing my stops up and plan to get out of NGS as soon as it shows some weakness.

Zweig Relative Strength 5 also did well with a gain of 6.29% on 5 stocks. Again NGS was the winner and KAI was the loser with a 3.71% drop.

The Zweig MACD screen didn't select NGS this week, but it did grab some good gainers, AEHR with a 14.45% gain and AMED with a 12.31% gain.

Missed this one

I've been watching GHM (a former Zweig screen selection) since the end of 2007. I rode it up for a really nice gain and then got out at near the top. It has been consolidating for the last 3 months and I was waiting for a confirmation (either down or up).

Today it had a breakout with a 25% gain, but I missed it. Oh well, there will be others.

Usually these are really good plays because you watch for a breakout and place a tight stop right below the breakout. You can often make a lot more than you risked with trades like these.

Gaining confidence

There's nothing like making a couple of good decisions to boost my confidence. I made two good calls today. I held on to WFR after dropping the stop to 2% below what it was gyrating at during the first half hour. It ended up losing only 3.44% after being down over 10%. Whew!

I put a 4% stop on NGS and it gained another 3% today. I was tempted to sell it while it was declining after the open, but I'm glad I waited. I shut the quotes off at 9:00 am and left them off until the close.

This has been the best two-week performance for me since early December. Yikes! That's a long time. No wonder I was getting a bit edgy.

It's good to see that the averages held above support today. It gives me some more confidence that I'm moving in the right direction.

Days like these

It's days like these that make me glad that I'm managing my trades better. WFR is about to open with a big gap down. It will blow through my stop and I'll lose a good chunk of money. But I didn't bet the farm on that one stock and I will live to trade another day, dagnabbit.

I never know what to do in gap-down situations. Do I try and sell during the craziness of the market open? Do I wait and hope the gap fills later in the day, week, or month? I just don't know.

For WFR, I removed my stop and I'm going to watch it today to see if I can get a read on what to do. I'll probably end up losing much more than if I sold it in the morning rush, but I'm here to make the mistakes so you don't have to. You're welcome.

A better day

I can't complain about a day where the averages are down but I'm up a percent. I played everything as planned today and it worked well for me.

One of the reasons that I am fully invested now is this chart. If you ask me (I know you didn't, but it's my blog dang it) things have bottomed out. I think there is opportunity for some gains right now, so I'm taking it.

I'm struggling with what to do with NGS tomorrow. My volatility stop system says it's time to sell. It's made 20% since I bought it and it looks like it's still trending up (it gained 4% today). The MACD just went positive and the chart looks good. I think I might follow it with a tighter stop because I don't think I can pull the trigger on it yet.

I'm starting to record my gains and losses as "R" (risk) multiples and that has really helped take the emotion out of my trading. So far I haven't had any huge R gainers (like Ugly), but I'm starting to get the hang of this whole risk management thing, I think.

An OK day

My portfolio got dragged along kicking and screaming to a gain that got beat by all the indexes--up 2.88%. A disastrous trade of CALM (don't ask me why) hurt me badly yesterday and today (I lost over 17% on that one).

This market is so wishy washy lately. It makes it very hard to gain any confidence in any move. But, at least I'm moving in the right direction. I'd like to be even for the year by summer. What a wimpy goal.

I've been moving into our new home this week, so it has been very busy. I'm getting behind in my classes and that has stressed me out a bit.

I've switched the StockPunk Market Meeter to "Go For It!" which means I think conditions have improved enough that going long is no longer scary. I'm an idiot, so please don't take my musings as anything actionable.

Back to my old habits

After a good week last week, I went a little crazy today. I even bought a stock by mistake. That shows you how close to my system I was sticking. I lost 2.20% today on a day the market did OK. Stupid.

This week with StockPunk

There's not much in the way of positive news out there so this might be a rocky week. I'm planning to stay in and carefully manage my trades to avoid any potential disasters. The Zweig screen didn't change much from last week. Good luck out there!

Week in Review 3-28-2008

This week felt pretty good. I made 2.71%, and I followed my trading plan while hardly looking at the market while it was open.

The best performing screen was Zweig RS 5 which made 1.70%. WFR really pulled the thing down with its 13.80 loss. For some reason I avoided buying WFR all week which dramatically improved my returns. I can't even remember now why I didn't buy it. Apparently I'm a genius.

Zweig and Zacks continues to lead the pack for 2008. It lost .40% this week but still has a gain of 12.93% for the year. WFR dragged it down to while NGS at 10.01% helped even the four stocks out.

I was a bit surprised at the market's weakness Thursday and Friday. It seem like things are still being driven by bad news. I expect things to go pretty well next week but I'm an idiot, so please don't listen to me.

Feel's like 2007 all over again

I'm starting to feel like I know what I'm doing again. I know it's been less than a week, but I feel a lot more confident than I did last week.

Today the market sucked again, but I managed to lose a bit over .20%. I'll take it, because I'm used to a least doubling the losses of the indexes. I don't plan on taking on any new trades tomorrow.

Getting my groove back

I steered clear of the market from open to close today. I was a bit squeamish to look things over after the close and after hearing that the indexes were down. I actually got my heart pumping a little bit because I was anticipating a loss. That's a sign that I'm still overly emotional.

Things went well today. The portfolio was up .58%. I'll take it.

I discovered that I messed up my computations for expectancy with 10% stops on my post a couple of days ago. I had put in the absolute value of the losses so they ended up being 10% GAINS instead of losses. That skewed the results a bit (OK, a lot). So the real expectancy given a 10% stop loss for the Zweig RS 5 screen over 244 trades was .27. Not quite as spectacular. That produces a 67% gain in a year with 1% of your portfolio at risk.

My goal is to create a system that produces at least 100% each year so I've still got some work to do. I can get the screen to make over 100% with 5% stops, but I think that might be a bit too tight. I'd like to be able to figure out if a 5% stop-loss would work, but I think the data-retrieval process would be too time consuming.

Another good one

Finally a day when I handily beat the market averages (going up, that is!). I made a decent 1.62% on 50% invested. I can't believe that I missed the real essence of Van Tharp's book which is developing a trading system with a positive expectancy and sticking to it. I had the whole "never lose more than 1% of your portfolio" thing down, but I lost 1% nearly 20 times before realizing that I was throwing money everywhere hoping to catch a wave in a declining market.

More recently I was trying to jump on as many trades as possible hoping that if I risked less I could benefit from the sheer number of trades I made.

Today I watched the opening and then turned off my browser and did some homework. I saw that the market was down pretty big about an hour after the opening because I have a stock market widget on my desktop. I closed that too. I looked again at the close and was pleasantly surprised.

It's extremely liberating to trust my system and avoid the micromanaging that I've always done. The fear of the unknown has always influenced me to make boneheaded decisions. I've never quite believed the experts who say trading should be "boring". But I'm starting to understand what they mean by that. Boring doesn't mean "unprofitable". It means that you don't let the markets (or the news, or the blogs, or your dad) get you worked up. You stick to the system that you know works, and you ignore all the insanity.

A day I can feel good about

Yeah, sure I was dragged along by the broader market, but I still feel pretty good about today. I avoided chasing any stocks, I didn't "over-think", I set my stops and stuck to them, and I used my system in the way it was designed. Up 1.72% on 50% invested.

More on Expectancy

I asked my brilliant wife to help me work out some issues I was having with calculating information for the two screens I wrote about in the previous post. She insisted that I needed a measurement of risk for each trade. I insisted that I didn't. She was right.

So I went back and re-calculated the expectancy for each screen and edited the post with more accurate information. What I learned in trying to figure things out is that the expectancy of each screen will measure the average risk of a trading system. For example, the Zweig RS 5 screen's expectancy is .18. So, if you make 100 trades you should average about 18 times the risk that you took on each trade over those 100 trades. The system produced 244 trades over 2007, so if you risked 1% of your portfolio value on each trade you should expect about a 43.92% return over the year.

I went back and applied a 10% stop loss to all the losing trades to even out some of the larger losses that probably would have been avoided with a stop loss. I know that a few of the gainers would be stopped out as well, but I didn't take that into account. A 10% stop loss shoots the expectancy up to .79. Nice. That brings an expectation of a 193% yearly return risking 1% per trade on 244 trades.

Using expectancy and risk analysis allows you to make better decisions about your system and your stop losses, while allowing you a better way to compare systems. This is the first time since I started trading that I have analyzed things in this way and it has really helped me get a better handle on what I am doing. I think that I can get to the point where my emotions and feelings don't control my trading behavior. I no longer will need to labor over the placement of stops, or obsess over finding the "perfect" system.

Scott Carl -- Amateur Trader

I can't stand it when I get beat by the averages. I lose more than they do when they go down, and I gain less than they do when they go up. That's how this whole stupid week has been. I haven't stuck to my plan at all (yes, I've been sidetracked again).

Today I made a measly .45%--mostly because of massive selling in my account yesterday. I just haven't got the knack for balancing the downsides and the upsides. It was rare that I felt that way last year, and maybe it's the market as a whole that isn't quite right. I don't know.

I re-read Trade Your Way to Financial Freedom by Van K. Tharp over the last week. I'm surprised by the amount of information I didn't digest the first time I went through it. Both Trader Mike and Chris Perruna have excellent articles about what they learned from the book.

I really didn't understand the whole concept of risk the first time I read the book. I made sure that I didn't loose more than 1% of my portfolio on any one trade, but I had no measure of expectancy or the value of the risk that I was taking (or making) on each trade.

I went back though the Zweig Relative Strength 5 and the Zacks & Zweig #1 screens to calculate (based on weekly data) what the expectancy of each of those screens were during 2007. I calculated based on a buy on Monday and a sell everything on Friday. Here's the data:

Zack's and Zweig #1 2007
Total Trades=135
Winners=79 (59%)
Losers=56 (41%)
Average Gain=4.0%
Average Loss=3.20%
Expectancy=.32

Zweig Relative Strength 5 2007
Total Trades=244
Winners=139 (57%)
Losers=105 (43%)
Average Gain=5.33%
Average Loss=4.95%
Expectancy=.18

Just looking at those numbers would convince most people that both systems wouldn't even beat the market. Neither one produced even 60% winners. The spread between winners and losers wasn't even one percent. But both beat the market handily. ZZ#1 made 44.64% and Zweig RS 5 made 46.70 without any sort of money management.

I've been really lazy about tracking my trades and I really have no idea the risk (R) I took on each trade. I hope to change that now.

Mama mia

Well, I lost nearly everything from yesterday. I decided to get more aggressive today, and things seemed to be working out for about the first hour and then it all fell apart. What a downer.

I have to admit that the decline caught me a bit off guard. I was expecting maybe a half percent but nowhere near what happened.

I made a buck!

I'd be a little upset if I didn't make money today. Holy cow. Who can figure this stuff out? I was up 3.28% today which can't match the big indexes. I guess that's OK considering that I wasn't fully invested. It sure seems that when things go down it doesn't matter if I'm fully invested or not, I usually lose more than the indexes.

Hopefully, this week will not be a repeat of last week--big move on Fed announcement and then lose it all.

I just can't make a buck

I can't seem to do anything right. I lost another 1.5% today. I would have done OK, if I hadn't added more positions which I did based on some stuff I looked at over the weekend. I am such an emotional wimp.

I still can't get a read on the insanity in the broad market. Stockbee is sitting calmly on the sidelines as he watches the carnage. His market monitor seems to be quite priceless during times like these.

I had a couple of friends ask me if this was a good time to get into the market. That concerns me. People should be terrified to put money to work right now. Maybe I should be terrified to be in the market too. Time will tell.

Week in Review 3-14-2008

What in the world is going on? Today was just nuts. I can't remember a time when I felt this confused during the day.

I lost .01% this week. I'll take it, but I got beat by all my screens except the MACD. My best performing screen was To The Moon at 5.41%. BVN was the best performer with a 10.74% return this week.

I don't like To The Moon because it forces me to rely on data from Zacks Research Wizard. I'm not planning on renewing (unless the offer me a better deal) so come summer I won't have access to the screens I've created with it. I almost wish that it sucked all the time. It still is lagging YTD so I guess that helps.

The screen that continues to rock in this nasty market is the Zweig and Zacks #1. Remember, it didn't pick any stocks during January. I would love to have even a piece of its performance for this year. WFR was the best performer at 9.36%.

I have even less a feel for the market this now than I did at the beginning of the week. I'm at 75% cash now, and plan to much more patient in these coming weeks for a genuine change for the better in this market.

Market Timing

I've gotten several questions about my Retrospect post. I'll try to answer them here.

Here is the chart that I used. It is one of the charts that Henry Ford at Pitbull Investor taught me about during our one-on-one tutoring session. This chart covers the year 2004 (used for example). I've shared it before, but basically it looks at the percentage of stocks above their 200 day moving average on the NY stock exchange.

When the blue histogram peaks above the red it is a sign that the market is healthy and you should be fully invested. It's just the opposite when the blue is under the red (these are just simple 20 and 50 day moving averages).

I went back through my data and compiled percentage gains and losses during the blue periods since the beginning of 2003. I did not do any compounding so the results are better than I posted. I used week to week data meaning that I took data from the Friday of each week.

Another interesting market timing site that Matt at Crush the Market told me about is Mojena Market Timing. I haven't really looked over the site too much but the concept looks interesting. It's a much longer-term timing model and there is a ton of free information on the site. Check it out.

Retrospect

I spent a lot of time today going back through old post to try and figure out where I went wrong recently. I was a bit surprised by some of the things I wrote only a month or two ago. I seemed to be on the market timing bandwagon nearly all the way through January and despite the huge swings in the market I stayed pretty much in cash.

Toward the end of the month, I started sensing a bottom and put some money to work resulting in additional losses. I was down 8.25% at the end of January.

I noticed that toward the end of the month I was getting tired of market timing and getting antsy to get back in. I went back through 2007 to find out if I had timed the market what would have happened. It seemed that market timing my mechanical screens really didn't help my portfolio at all and I came to the conclusion that being fully invested was the best strategy for me.

My returns for February reflect that strategy in conjunction with about four other unproven strategies that I latched on to out of desperation as I watched my portfolio dwindle.

I decided to do some research (research is my thing when I'm losing) and find out if there was a way to secure decent gains while avoiding huge losses. I combined my own weekly data (going back to 2005) with Keelix's backtester (going back to 2003 for weekly data) to test my hypothesis.

If you're interested in the backtested data for the Zweig RS 5 screen you can look at my backtesting job at Keelix's backtesting site. The job # is 207890. I used a simple moving average chart ($NY200R in stockcharts) that I've shown before to judge whether I am in the market or out. Here are the results.

2003--153.51%
2004--35.03%
2005--39.45%
2006--53.90%
2007--37.41%

Those results look really good right now especially when you consider that big market drops were essentially avoided (especially this latest one). There was only one period where the screen lost money and that was in Summer of 2004 where it lost 2.99%.

Food for thought.

Some Gain

Today was bittersweet for me. The market took off like a rocket and it appears to be more than short covering. I benefited a bit from the rally. My portfolio was up 2.20% about half of the major indexes.. However, I made the mistake of selling some of my most beaten up stocks yesterday when I was pulling my hair out feeling sorry for myself.

I feel like I just recovered from the flu. I'm a bit shaky and not sure the worst is over. I feel better, but things were awful for a long time. It will take time to see if we've got a new trend forming.

I'm not sure what I can learn from these past few months. I do know that losing so much so quickly really threw my whole trading plan for a loop. I threw my strategy, my money management, and my unemotional take on the market out the window and acted like a desperate newbie at times.

In retrospect, I should have stayed in cash for the last two months. Nothing was telling me that it was time to buy. I just expected the bottom to form along the way and it didn't. But as a mechanical trader I'm supposed to ignore the swings of the market and stay fully invested. I feel like that guy with a devil on one shoulder and an angel on the other whispering in my ear telling me how to invest.

This downturn has been the worst (on many different levels) since 2002. Today's surge was the largest since 2002. Hopefully the rest of the year won't resemble 2002 and I can get on with my trading. Right now, I'd be happy to be even at the end of the year. Maybe that's aiming too low, but I have to admit that this downturn has put a serious chink in my trading armor.

More Pain

I continue to suffer--down another 1.81%. I feel like giving up. I know that as soon as I do, we'll see a powerful rally.

I've tried to pick a bottom about three times during this decline. I haven't done so well. I'm not about to pick one now.

Hindsight

This is my favorite tool when I judging the overall health of the market. Simply put, if the line is above the blue, things are OK. If not, it's going to be tough. It doesn't give a bearish signal very often, but when it does, watch out!

I kind of ignored this chart during the last couple of months but it has been to my peril so far.

I'm going to keep on doing what I do, but if I continue to struggle, I may sit on the sidelines for a while and re-evaluate my strategy and how to handle things during a struggling market.

What will happen next?

Whenever thing are going well for me I make a beeline for my trading journals. I am amazed at how easy it is to forget what happened even a few months ago. I was really surprised to see some really awful months in years that ended up going very well.

These last couple of months are in no way the worst months I've had. Not even close. During 2006 I lost 31.03% from the beginning of May to the end of January. I was much better then at staying the course and not letting the market's swings depress me. In fact just a few months before that gigantic drop, in February 2006, I lost 14.73%. Somehow I managed to end the year up over 60%, so I really don't know what I'm freaking out about.

Part of my problem is that I too often look at the money I've lost rather than the percent. I have a lot more money now than I did in 2005, so losses hurt much more.

As you can see from my returns, I haven't stuck to any of my plans and it has hurt me. I've got to get back on track and stop this silliness.

Only 3 stock qualified using MACD this week. I don't know if I should consider that bullish or bearish. Five stocks earned Zacks #1 rating. The highest relative strength stocks all got pretty beaten up last week.

Stick to the plan.

Thanks for everybody who wrote words of advice and encouragement recently. I'm amazed by the intelligent people that read this dumb blog. Please keep up the brilliant discussions!

It got worse . . .Week In Review 3-7-2008

Ouch. My gains from last year are quickly evaporating. I don't like it.

I lost 3.67% this week. It could have been worse--the Zweig RS 5 lost 5.75%. Yikes.

Zweig RS 5 was the worst performing screen this week. WATG performed terribly losing 16.59%. WSCI (which I didn't buy, of course) was the only stock that made money--3.78%.

The best performing screen was To the Moon which only lost .60%. Of course, I owned nothing on that screen.

ZZ #1 is still holding out as the screen to beat this year.

I'll be honest and admit that I feel a bit beaten up. I genuinely felt that we had reached a bottom a couple of weeks ago. I'm not sure what to think now. I know if I decide to pull all of my money out, that's when everybody should buy because the market will surely rocket up.

I plan to stick to my guns next week. Maybe what I do doesn't work in markets like these. I've never been through anything like this. But I think the best lesson I can learn is to trade a struggling market so I have a better plan when I face it again.

It can't get much worse. . . can it?

Right now 82% of NASD stocks are below their 200 day moving average. The last time we had a number that low was mid-2002 when 91% of stocks we're below--that's nutty.

Tomorrow will be interesting.

I don't like this . . .

Losing money isn't fun. I lost nearly 2% of my portfolio today. I'm hoping this ends soon. My 40% gain from last year is now sitting at 18%. Yeowzza! I guess I'll take it considering what's going on everywhere.

At least the market isn't rocketing up as I loose my shirt. That would be a bit disconcerting.

I plan to continue plugging away until things get better. I've spent too much time missing out on good days because of my fear of losing. It's just a bit ironic that I picked a pretty nasty time to decide to stick to my trading plan.

Lots o' Confusion

This market continues to flail about like an injured bug. There seems to be no predicting which way it is headed. It's providing lots of opportunity for learning (and pain).

For some reason, yesterday was the best day ever for StockPunk. I started posting on a daily basis about this time last year. Readership has blown past what I ever expected during the past year. Thanks to all StockPunk readers. I've learned a ton over the last year! I hope I've been able to provide some tidbits of useful information.

My friend Sean continues to hold on to his "holy grail" stock IESV. He bought it at 5.5 cents and over the last year it dropped to a penny. He called me yesterday to tell me to look it up and it was up over 100%. It ended up 46% by the end of the day. Sean seems to think I wish the worst for him and his penny stock, but that is not true. I hope it goes to 10 bucks today. Good luck, Sean.

I just renewed my subscription to The Kirk Report's members only site. Charles' site just gets better and better each year and I learn something new every day. Lately, he's been sharing what he looks for when picking a stock. It's awesome stuff that very few books or web sites can offer.

Putting things in perspective

It's times like these that shake out the wimpy traders. I'd be wimpy too if I was just starting out. I'm down over 15% now. That hurts. It's the most I've ever been down.

But if I go back in time, I can see that since I started trading in March of 2003 (blue arrow) this is the most that the market has struggled (indicated by the percent of stocks above their 200 day moving average). So I should expect to be down (and so should you unless you're some sort of genius).

Looking back, it would have been nice to be able to predict this decline. I should have stayed in cash. Maybe someday I'll be knowledgeable enough to time the market correctly. Right now, I don't have a clue.

The key (for me at least) is to remain committed to a trading plan that I know blows away every mutual fund and index out there. It's easy for me to question my sanity when things aren't going my way. The best thing I can do is to put things into perspective and avoid the emotional turmoil that rough times in the market create.

Here's some perspective:

1) I'm still performing better than the NASDAQ which is down 15.77% YTD.
2) The indexes have given up most (NASDAQ) or all (S&P 500) of their gains from last year. I've given up half of mine so far.
3) I'm young and relatively inexperienced when it comes to the stock market. I have a lot to learn and a long time to do it.
4) I've never lost money over a year's time.
5) According to AAII, the Zweig screen held month to month since 1997 has NEVER lost money in a year's time. In 2002 it still managed to gain 16.9%. The average yearly gain since 1998 for the Zweig screen is 42%!

So, don't get all bummed out about a couple of lousy months! (I need this kind of perspective more than anyone!)

The Year of Learning

Since my 5 to 10 year plan is to eventually be able to trade for a living, I have designated a year to spending time and money learning all I can about trading. I started last summer and I budgeted about $5,000 toward the task. My car has 130,000 miles on it so I figure that if I can keep driving it and figure out how to make a buck, I'm way ahead of my neighbor who trades his cars in every 3 years.

I have already spent most of the money. So far, I am very unimpressed with most of the information I've spent money to acquire.

I just finished watching the Optionetics DVDs tonight. To be honest, I really don't know how somebody can feel good about spending $3,000 to attend one of these trading seminars. There is very little actionable information that is given out in these seminars. The information that is shared is often so technical that I doubt if 10% of the folks in the audience have any idea what the guys are talking about.

The same thing goes for the Trend Trading To Win video and lecture series. I watched all of those DVDs as well and felt there was very little to use successfully.

I'll probably post a series this summer about the money I spent, and what I learned over the year. There are some services that I feel were worth the money, but I'd like to give it a few more months before I share what I've learned.

Down .36% today, but I traded my plan so I not getting too upset. When will this goofiness be over with. I don't like feeling like I have no idea what I'm doing. I can't wait to get back to even for the year.

This Week with Stock Punk 3-3-08

I'm a bit apprehensive to put some money to work after Friday's sell off. I'm such a wimp.

The Zacks and Zweig screen has 5 stocks that qualified this week which is the most since mid-December. I don't know if that is a good sign or not, but I'll be sure to keep an eye on things.

I plan to focus on the ZZ screen this week and put about half of my money to work.

Week In Review 3-1-2008

Well today was unpleasant. The beginning of the week was encouraging and it looked like I might pull out of my double digit losses but I ended up diving right back in on Thursday and Friday. For the week I was down .07% which was better than most of the screens, but still not very comforting.

The best performing screen was the Zweig MACD which made a measly .28%. The best performer among that group was GHM at 13.01%. The worst was AMED at -6.86%.

Zacks & Zweig was the next best performer at .08%. That screen still leads the pack for the year--mostly because it had no selections during January. ANDE performed well for that screen at 6.54% for the week.

Zweig Relative Strength 5 lost 3.23%. NGS was the only gainer at 6.51% for the week. Ironically it was the only stock I didn't buy. It blew past my limit order and I decided not to chase it.

To the Moon lost 1.69%. ICFI gained 6.11% and BYI lost 8.87%.

I spent most of the week managing an unwieldy portfolio and trying to pare down some of my unwise buys. Hopefully I can refocus and pull myself out of this pit I'm in. The broad market certainly isn't making things easy for me, but I'm beginning to see what works in markets like these. That's a good thing, because I'm sure I'll experience several of these before my time is up.

Warren Buffet speaks

Warren lives just down the street from me (OK, it's about 7 miles), so we're practically neighbors. That really doesn't mean anything. He hasn't ever stopped by.

I'm currently reading a book about investing the way Warren does. Dang Le (sometimes I wish my name was Dang) at Underground Value has done a nice job of putting together a transcript of Mr. Buffet's appearance at a college in Austin. That Buffet is pretty smart. Thanks Dang!

Things are looking up

My trading has been erratic and undisciplined over the last couple of months and my returns have reflected that. I'm attempting to return to my "bread and butter" which is mechanical trading. As I've written before, I do best when I avoid the emotions of the news and the internet and just focus on what has worked for me in the past.

I've got some house cleaning to do. I've still own a few leftovers from the last two months, but I plan to be rid of them soon as I transition back into my own ideas.

The last couple of days have been good, but I haven't really outperformed the major averages. My goal is to be out of the hole by the end of March and start working on another 40% gain for this year. It's not going to be easy.

I'm starting to see some optimism among my favorite bloggers and writers. Stockbee says that we've formed a bottom--he's been in cash since November. A few of the indicators that I follow show things turning. A lot of the gloom seems to be waning. Phil Grande says we're still heading for DOW 10,000. I've stopped listening to him--he's too negative and always makes me question my own trading plan.

The percent of stocks on the NY stock exchange above their 200 day MA has just popped over its 50 day MA for the first time since the beginning of November (blue arrow). I'm planning to get aggressive over the next few weeks.

Week In Review 2-22-08

Well, that week sucked. My screens all did better than I did. I completely over traded this week and my portfolio shows it. I've got stocks from four different "systems" in my portfolio now and I've got so many that it is getting difficult to remember why I bought each one. Stupid. I know better, but I get so desperate to make money sometimes that I grasp at anything that looks like it will work. Like always, I ended up hurting myself much more than helping.

The Zweig MACD portfolio continues to lead the pack this year with another good showing of 3.32% this week. The best stock in the portfolio was WFR at 7.37%. The worst was KEX with a loss of 2.11%. The screen picked 11 stocks.

The Zweig Relative Strength top 5 made 3.37% for the week.

Zacks & Zweig lost 1.36% and had 3 picks--ANDE, KEX, WW.

The To The Moon screen lost 1.59%.

I'm adding the Zweig MACD screen to the side bar because I think it has potential. We'll see.

My portfolio is down nearly 14% which means I've lost nearly half of the 40% I made last year. I guess I shouldn't look at things that way, but I can't help it.

And the Market taketh away . . .

The market took my gains from yesterday and helped itself to a little more of my portfolio--down 1.99%. I'm on the precipice of being down 13% for the year, a bridge I've never crossed before. I know that drawdowns are part of this whole gig, and I'm fully prepared to take a 20% hit--but that doesn't mean I have to like it.

Still struggling

I made money today, but I'm still kind of spinning my wheels. The portfolio was up 1.43%.

I was encouraged to read that members of the Kirk Report who picked their favorite stocks haven't done so well since the beginning of the year. All of the portfolios are down about as far as I am. Things are tough all over.

Interesting Screening Site

I saw a mention of Keelix.com on a mechanical investing website and found the information there very helpful. The stock screening tool isn't real easy to use at first, but it somehow utilizes the Stock Investor Pro database and allows backtesting! So far I've been able to put together some of the Zweig screens and back test them over years that I don't have data for. The data that shows up is exactly the same as my actual results.

I'm excited about the potential of the back tester. I've spent hours and hours backtesting ideas by hand, and frankly I've skipped a lot of ideas because I wanted to avoid the tediousness of the paperwork. When I get some time, I'll head over there again and see what I can discover. Cool stuff.

Combining Zweig Screen with MACD Indicator

I really like the MACD indicator even though I usually don't use it in my trading. Since 2004 I've tracked the highest relative strength stock in the Zweig screen and also tracked the same stock and only buying if the MACD is bullish.

Since 2004 and rebalanced weekly that one stock has made 3723%. That's pretty good and worth a look, but the MACD indicator helped to produce a 7553% gain over the same period. That's even better.

I don't know why, but I have never tracked a modified Zweig screen buying only stocks with a bullish MACD. I started to track this this year and so far the results are promising. YTD that screen is down only .08% compared to heavier losses in my other screens (and in the indexes). I look forward to having a few years of data under my belt so I can see if the MACD "qualifier" has potential.

If you are interested in the MACD indicator, Zacks Research has a good article here.

Week In Review 2-15-2008

Most of my problems this week came from trading mistakes. I held too long on stocks that I knew I should sell, and I didn't take gains when I had them. I decided to change my strategy a bit to take advantage of the volatility that exists in the market now. I am still using my screens to purchase stocks on Monday and holding them throughout the week. I do that with half of my portfolio.

With the other half, I am more actively trading some small-cap stocks and holding for just a few days (or hours). I could have made some decent returns this week, but I'm too used to trading on a weekly basis. The weekend allows me to make decisions that are much less emotional than when I am trading during the week. I need to work on being more mechanical in my decision making if I want to make the intra-week trades work out. There's potential there, but only if I can keep my emotions (and so-called logic) at bay.

I am now being beat by ALL of my screens. I'm pathetic. To The Moon had the best returns this week thanks to a big gain by CSIQ--21.17%. The solar stocks came roaring back this week. The Zacks and Zweig screen had a pick on KEX that made 2.48% this week. So far that screen has only produced two picks since the beginning of the year. I'm thinking that it would be wise for me to track the number of picks on that screen each week to see if it correlates with overall market direction.

The Zweig RS 5 screen managed to eke out a .15% gain for the week. It had GHM, KEX, WATG, WFR & WSCI in its portfolio with KEX doing the best and WSCI doing the worst -4.07%.

I am now officially down YTD more than I have ever been since I started trading in 2003. I assure you that I'm quite bothered by that. I am still convinced that I can get out of this hole and make some decent gains this year. It will be a challenge.

It's during times like these that record-keeping is so important. I need to be constantly reassured that what I am doing works. There is nothing to reassure me but the history of my trading and of the screens I use. When I look back at the last few years, this past couple of months are just a blip.

And . . .Back Down Again

Looks like I'm caught on the Stock Market Roller coaster right now. I lost almost all of yesterday's gains. Despite this ongoing volatility, I'm still feeling better about the direction we're headed.

And back up once again

Sometimes I feel like I have no idea what I'm doing. I think that all traders probably feel that way sometimes.

Today was my best day since December 10th. That was a long two months. I hope it's a sign of things to come because I'd really like to get myself out of the hole I've put myself into.

Back down again

Today, I lost my piddly gains from yesterday. Things looked encouraging at the open and through most of the day and then it all came crashing down very quickly. I don't like this market right now, but it's teaching me a lot. Hopefully, I'll apply what I've learned. Probably not.

Whatever

I checked the portfolio a couple of times today. It bounced around like a yo-yo. I ended up making .29%--yawn. I've been trading some more volatile stocks lately hoping to take advantage of the overall volatility of the market. They drug me down today. We'll see what happens tomorrow.

I'm still fully invested and my gut tells me that's an OK way to be right now.

Prudent Speculator Reports

The Prudent Speculator newsletter used to provide weekly updates on the condition of their portfolios. Since the market's decay in December, the updates have grown more rare. They've finally posted their portfolio results for 2008 YTD.

As you can see, they're not doing too well. They're doing better than me, but you'd expect that from a company that scores so highly in the Hulbert Financial Digest.

This market is tough right now--for everybody. AAII's Stock Superstars Report is down 10.8% YTD.

Personally, I don't think this nastiness will continue for the entire year. I'm glad it happened now, because it has thrown me for a loop and forced me to work hard to figure out how to maintain my portfolio. We still have 11 months to go and that's a good amount of time to apply the new lessons we've learned recently.

Week In Review 2-8-2008

Another crummy week--down 3.22%. I feel better overall about how I handled the week. Like I've said recently, I'm more comfortable putting money to work and losing than watching from the sidelines. It did feel good to be in cash on some of those awful days, but the days where the market surged forward while I watched made me feel crunchy.

My goal this year is now to stay fully invested and see if I can still accomplish my goals. My constant indecision about whether to be in or out has already cost me several percent. I'm doing worse than all the screens (except To The Moon), despite missing out on some big down days.

I really want to see this year if trading for a living is a viable prospect. It may be good for me to go through a rough time like this so I can prepare for them in the future. If I can recover this year, I'll feel a lot more comfortable going forward.

Yipee!!!

Today was the first day that my portfolio has advanced over 1% in nearly 2 months!! That's the longest I've gone since I started trading. A lot of that stems from my whole "market timing phase", but it has still been a long wait.

I was able to ignore the market for the most part today. I'm so much more happy when I do that.

Why I'm still in

Despite all of the negative news this morning and with the anticipation that the market is going to suck today, I have to question my sanity when I decide to stay fully invested. But that is what I'm going to do today (I'm actually planning on adding to my positions).

For encouragement I look to the past performance of the Zweig screen as determined by AAII. Although this screen is managed on a monthly basis rather than a weekly basis like mine, in 2002 (an awful year for the broad market--S&P 500 down 23%) the Zweig screen managed to make 16%.

It has always made sense to me that it is best to stay fully invested despite what the market is doing for a few reasons:

1. Even if the market in general sucks, there are always a few shining stars out there that make a lot of money.
2. If my goal is to trade while working full time, I really don't have time to monitor the market and make good timing decisions.
3. I've never been able to get the timing thing right. I don't know if I ever will.

Toward the end of the year I got off track and started listening to all the noise out there. Even though there were a lot of contradictory opinions, I felt that I could figure out a good way to judge when I should put money to work and when I shouldn't.

The jury is still out, but I've decided that it's easier for me to trust my system and take losses than it is to trust an indicator and miss out on gains. That's just me. Perhaps if I get punished enough, I'll reconsider.

Chris Perruna has a terrific article today on the futility of predicting market direction (or anything else).

Glimmer of hope

My portfolio shot forward over a percent today and ended up losing .30% by the end of the day. I lost less than the major indexes, so I guess that's a plus.

This is the worst YTD start for the the S&P 500 EVER so don't feel too awful about losing some money. Things will come back (they always have) and there will be some great opportunities to make lots of money.

As of today, the portfolio is down 12.23% which is my worst YTD showing ever. I am convinced that I need to continue trading because as soon as I go to cash things will turn around. I still think money can be made despite the declining tape. I might reconsider that when I'm down 20% for the year--we'll see.

The village idiot

Once again traders and investors turned to StockPunk to feel better about themselves after a unpleasant day on Wall Street. Yesterday brought the most visitors to StockPunk in its history. Maybe someday people will come to the site to see how I managed to buck the trend and make lots of money on a crummy day. Right now, I guess I can just be content that people are enjoying watching my portfolio disappear.

I have the worst stock market timing in the WORLD!

You'd think I would have learned by now. I hem and haw for nearly a month (and still manage to loose 8% of my portfolio. I get tired of waiting and jump in--right when the market gets spanked. Today I lost 3.53%.

Maybe someone should design the StockPunk Contrarian Indicator. Whenever I put all my money in, it's time to run for the hills.

Your Next Great Stock

I just finished up the book Your Next Great Stock--How to Screen the Market for Tomorrow's Top Performers by Jack Hough. Mr. Hough is a contributor to several magazines and news shows. I have enjoyed his Stock Screen article in Smart Money magazine over the past couple of years.

Hough has put together an easy read that's actually fun. Most of the book focuses on why stock screening works, while the last half of the book helps the reader put together some stock screens of their own.

Even though I've been creating screens of my own for years, I really enjoyed what Hough had to offer. I was never bored (as is often the case with poorly written stock books). Hough presented some very interesting history about the stock market and about stock picking.

He also does a nice job detailing why stock screens work, why they are the best way to find great stocks, and how to keep emotions at bay. He goes on to explain the mechanics of screening and how to put screens together on your own. He lists several screening tools that are free and some that carry a fee. One of his favorites is AAII's Stock Investor Pro (mine too).

Overall, if you are interested in stock screening, this is a great book that explains the process clearly with a sense of humor. If you are already comfortable creating your own screens, the book still offered a lot of encouragement and perhaps some new ideas for additional screening criteria.

Late to the party

I've decided that this market timing stuff just does not fit with my personality. I think it is easier for me to face a drawdown in my portfolio than to sit out while the market does its thing. Last week I missed out on a 10% gain for the portfolio because the indicators I watch said that we're still not out of the woods.

Maybe we aren't, but I'd be much better off right now if I had been fully invested. Maybe someday I'll have things so figured out that I can dance in and out of the market with emotionless conviction.

So, as of yesterday, I'm fully invested in my trading plan. Once again, my timing is way off and I'm losing money like crazy. But this is all part of the plan.

Stock Punk Goals for 2008

My goals this year are very similar to the ones I had last year. Here were last year's:

Goals for 2007 (In order of importance)

1) Beat the S&P 500
2) Beat the Stock Superstars Portfolio
3) Beat Charles Kirk's Yearly Return
4) Make 20% on Portfolio
5) Match or beat last year's return (62.44%)
6) Control my emotional trading and stick with the program

For 2008, my Goals are as follows:

1. Beat the S&P 500--Shouldn't be too hard, but I'm already behind on that goal thanks to my irrational trading.
2. Beat Stock Superstars and Prudent Trader Newsletters
3. Make over 20% on my portfolio--My goal is to eventually trade for a living. If I can eek out 20% each year, I'll be able to meet my goal in the next 5 years.
4. Beat last year's return--I'm not doing so hot so far this year. Last year at this time I was up 12%. I've got a ways to go.
5. Control my emotions--I'm a miserable failure so far this year. Hopefully, I'll get a grip and start doing better with this goal.

AAII's Stock Investor Pro

Members of the Kirk Report voted Stock Investor Pro their number one stock screener. I'm surprised that Zacks Research Wizard didn't make it in the top 10. I think Zacks has priced themselves out of the market when it comes to individual investors. That's too bad, because it really is a powerful screener.

StockPunk Market Meter

I'm changing the StockPunk Market Meter to neutral tonight. The Fed has whacked this market and not much is making sense. Indicators that I follow are all over the place. But I do think there is finally some opportunity to make some money (at least for a while).

Week in Review 2-1-2008

I got spanked.

This week was a mess for me and it is reflected in my account. I didn't lose anything (I gained a measly .5 percent), but when the averages looked like this (Dow +4.39%, the S&P 500 +4.87%, Nasdaq +3.75%, and the Russell 2000 +6.08%) I can't be too happy about my performance.

Here's where I went wrong (please learn from my stupidity):

• I lost focus and strayed from my plan
• I resorted to stops (and had no guidelines for how to place them)
• I paid too much attention to indicators, news, and other blogs which paralyzed my trading
• I worried too much about the broad market
• I waited for stocks to "prove" themselves and then got left behind as they rocketed upward
• I sold too soon

It has never paid off for me to market time, and yet I do it every time my account takes a hit. You'd think after years of doing this, I would learn my lesson. It just hurts so much to loose money even when you know it's all part of the game.

Now that January is over, I hope to get back to the plan and crawl out of this hole I've dug for myself.

All but one of the stock screens did very well this week. The ZZ#1 screen which filters AAII's Zweig screen with Zacks #1 ratings made 11.42% this week with it's one pick LXU. That is the first stock the screen has picked since the end of December which may be an indicator of its own (no #1 stocks--market sucks).

The Zweig Relative Strength screen made 4.05% this week but is still underwater for the year. The screen would have done much better if it wasn't for the blowup of GHM at the beginning of the week. I picked GHM up on Wednesday and have made a nice 13% on it so far which was my only good call this week. Without GHM the screen would have made over 10% this week thanks to a tidy 29% return for WSCI.

StockPunk's To The Moon screen is sucking wind and is down over 11% for the year so far.