Traders love to diagnose the sentiment of market participants. Jason Goepfert took that insight and created one of the most popular research companies: Sundial Capital Research.

Sundial publishes both the widely cited Sentiment’s Edge blog and their premium sentimenTrader research. I sat down with Jason to ask him some questions I think you will all enjoy …

Damien Hoffman: Sentiment Trader has some excellent stats and insights. How do you guys create your studies?

Jason: A lot of work. I joke that I have a “spreadsheet graveyard” and that’s certainly the case – thousands upon thousands of studies that simply didn’t result in anything. It’s very much like gold prospecting: you have to shift through piles of dirt to find even small nuggets … and sometimes even those turn out to be fool’s gold.

I also get a lot of questions from subscribers and others who are curious about certain aspects of the market, and those often trigger interesting new studies. And I read a lot. It’s amazing how many of the topics we discuss directly refute what’s in the media and textbooks.

Damien: Over the years, you’ve seen a lot of investors and traders. What are three keys to trading success?

Jason: Focus on expectancy instead of win/loss ratios. Some people simply require high winning percentages, and some just care about a few big winners. Whatever your strategy and mental makeup, just make sure the expectancy is positive.

I would also suggest that limiting big losers is extremely important. You can have a losing strategy but still be able to stay in the game long enough to correct yourself as long as you don’t get knocked out by a few big losers.

Lastly, do your own work and take responsibility for your own actions. It’s great (and necessary) to read outside research and constantly learn from others’ perspectives, but you have to have the discipline to find a strategy that fits your personality; then, integrate everything else into that framework.

Damien: Can you give me a preview of what you plan to discuss at the 3 Gurus webinar next week?

Jason: Sure. We’ll be taking a look at any current extremes in stocks, sectors, currencies or commodities. It will be very similar to the webinar I did with Fari in January, but probably with less emphasis on stocks — unless, of course, the market makes a big move and we get a ton of interesting extremes.

Damien: Thanks for your insights, Jason.

Jason: Thank you.

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