A heatmap is basically a two-dimensional graphical display of data on a group of stocks, sectors, markets, or securities. This allows an investor or a trader to visually assess the performances of various securities from the weakest to the strongest over a defined period. Colors and shading of the colors are often used to denote the different performances of these securities. Green color denotes stocks that have advanced. Red color depicts stocks that have depreciated, and black color are stocks that are flat over a specified time frame.
Heatmaps can be quite useful as they offer a very quick and efficient way for a user to get a comprehensive overview of stock performances across different sectors, industries, and markets. Since a heatmap gives you a visual perspective of what’s working and what’s not working in the marketplace a brief glance of a heat map can help you gauge risks and exposure in the marketplace. You do not need to spend a lot of time and efforts to assimilate a lot of information.
Investing and trading is like playing poker or blackjack. A serious card player must quickly evaluate and assess the strength of his or her hand against the house or competitors. A good card player understands that this is more than a game of chance. It is based on the law of probability, human psychology, experience and a little bit of luck. Understanding when to make big bets, check or fold differentiates a good player from a bad player.
With the proliferations of high frequency, algo trading, quant and computerized trading systems it has become increasingly difficult for investors including many retail and institutional professionals to successfully compete against these trading outfits. The sophisticated trading concerns can process enormous amount of data quickly and execute these trades within milliseconds.
Retail investors will need to deploy and utilize available trading tools such as heat maps and others to help level the playing field. Due to the sharp returns so far this year, we suspect there will be above average window dressing activities and tax harvesting strategies implemented into the next several weeks.
Although there are more sophisticated heatmaps available we believe the enclosed heatmaps will suffice for most retail investors. The objective is to use the heatmap to quickly assess where there may be an increased in marking up of winning positions and marking down of losing positions as well as the implementation of tax loss harvesting strategies.