SSI Stock Investing in the Red Zone

My mantra at TradeStops is you’ll have the best chance for success if you invest only in stocks with an upward momentum that  aren’t in the SSI Red Zone. That is far and away the safest strategy to stay out of trouble for the majority of investors.

But I realize that for many investors, there are valid reasons to hold stocks in the SSI Red Zone. You might have low cost-basis stocks on which you don’t want to pay capital gains. You might have a high conviction idea that you don’t want to use a stop-loss strategy for. You might participate in an employee stock purchase plan.

There are two things that should be considered when owning stocks in the Red Zone.

The first is that even if you have stocks in the Red Zone, you want to be sure that your portfolio remains “right-sized.” This means looking at your portfolio on an annual basis and being sure that you’re taking an equal risk per position so that you have more money invested in your more conservative stocks and just the right amount of money in the riskier stocks that can blow up your portfolio.

This simple but profound position-sizing strategy more than doubled the average performance of over 40 individual investors over a 16-year period. The blue line in the chart below shows the impact of this strategy on improving the performance of this group versus the black line, which is their original collective performance.


Having an intelligent approach to position sizing is serious stuff that should never be overlooked or underestimated.

While smart position sizing is something I’ve talked about many times before, my second suggestion for what to do when you hold stocks in the Red Zone is a new one.

This year we’ve written multiple times about a sector-based strategy for beating the S&P 500 using the 9 ETFs of the Select Sector SPDR ETFs from State Street. We wrote about it here and here.

One of the most interesting parts of that research for me was the question of when to go completely to cash. In the original study, we used a rule that if 3 or more of the 9 sector ETFs were in the Red Zone, we discontinued adding any new positions and sat on the cash. Only after 7 of the ETFs were back in the Green zone or Yellow zone were new purchases made. That was a very powerful rule.

We recently expanded on that research and asked the question, “How much of a portfolio’s capital can be safely invested in stocks that are in the Red Zone?”

The answer that we came up with is 40%.

Now before I go any further, I implore you to please be careful with this idea. This is not an endorsement of putting up to 40% of your portfolio into stocks in the Red Zone. I still feel strongly that the majority of our portfolios should be in stocks that are in the Yellow Zone or the Green Zone.

What I will say today is that if you are going to be invested in stocks that have a red SSI, then make sure that no more than 40% of your portfolio’s dollar value is invested in these stocks.

Why do I say this?

The below chart takes a little time to understand but it tells the story.

What it shows is a system that is in the market when 60% or more of the portfolio’s capital is not stopped out and is out of the market when 40% or more of the portfolio is stopped out.

The bottom area of the chart shows the % of the portfolio not stopped out. The red line is the critical threshold at 60%. As long as more than 60% of the portfolios assets are in the Green Zone or Yellow Zone, it’s smooth sailing. When 40% or more of the portfolio’s assets are in the Red Zone, it’s time to step aside from some or all of these positions by either going to cash or investing in other stocks that are in the Green Zone.


So, if you’re going to hold on to some of your Red Zone stocks, you’re taking more risk, but it can work. Just make sure that:

  • You’re still using smart position sizing; and
  • You never have more than 40% of your portfolio in assets that are in the SSI Red Zone.

Stay safe,

Richard Smith, PhD
CEO & Founder, TradeStops

Healthcare Stocks Point To Your Good Health!

The healthcare sector has underperformed the rest of the stock market for most of this year … and particularly for the last six months. That could be changing soon … in a big way.

The SSI chart on XLV, the ETF that tracks healthcare stocks from the S&P 500, tells the story …


XLV literally started and ended 2016 right at $70 per share. It triggered an SSI entry signal in April … right at about $70 per share. Since then, it has risen to $75 and fallen to $66 (all moves within its expected volatility range of 12.8%) and returned again … to $70.

So … why do I think all that could be about to change?

The healthcare stocks sector is trading in a very strong area of support. It went through the SSI yellow zone and came within pennies of hitting the SSI Stop signal (see SSI chart above). It has since moved higher and currently rests just inside the SSI green zone.

The volume-at-price (VAP) chart on XLV shows that XLV is sitting right on its biggest price-volume point at, you guessed it … $70.

healthcare stocks sector

Another striking feature of the above chart is the downward price spike that occurred in August of 2015. These kinds of sharp spikes down are very often a sign of higher prices to come because they effectively clear out all the sellers that have been hanging out at lower price levels. These kinds of events are referred to by insiders as “running the stops” or, more colorfully, “wash and rinse cycles.”

This is exactly what happened in the financial sector as well. XLF is the financial sector ETF. Like XLV, it also spiked lower in August of 2015 and, about a year later, moved sharply higher off of strong VAP support.


This same kind of opportunity may be setting up in the healthcare sector right now. The sellers in the healthcare sector have been exhausted. Support has held. The sector is poised for a breakout to the upside … and that upside could be very potent.

Finally, my time-cycles are forecasting a move higher in the healthcare sector for the next four months as well.


The healthcare sector is normally thought of as a defensive sector with the ability to outperform a market that is moving lower. If the markets take a breather, as I suggested last week, the healthcare sector could buck the trend.

To your good health!

Richard Smith, PhD
CEO & Founder, TradeStops

Our Most Important Research

Back in June, we published one of our most important pieces of research of 2016 … how to crush the S&P 500 using just the S&P 500 … plus the TradeStops SSI system. The simple system we published back then beat the S&P 500 by 2 to 1 … and did so with less than half the risk!

I recently asked my team to apply our more recent groundbreaking research to that study to see the impact. I wasn’t disappointed. Trust me, you’re really going to want to see this.

The original study had been prompted by a challenge from one of our subscribers who wanted to know how our Stock State Indicator (SSI) system performed on the S&P 500 vs. a simple buy and hold strategy.

Here is the main stock market indicator takeaway chart.

stock market indicator
The SSI system includes an exit and an entry strategy, both based on the TradeStops Volatility Quotient (VQ). The system represented by the blue line above used the SSI system to strategically exit (red down arrows) and re-enter the S&P 500 (green up arrows).

The outperformance of the SSI system here comes entirely from being out of the market during the 2001 – 2003 and 2008 – 2009 periods. The system was also out of the market for a few months in 2015 – 2016 but it lost a little ground by being out of the market during this period.

OK. That’s the backstory. Now … there are two pieces of our most recent research that I asked my team to apply to the original study. The first one is the research we did on how increases in volatility (rising VQ’s) can be used as an additional buy indicator.

In the chart below we can see how in both 2003 and 2009 the VQ on the S&P 500 did indeed increase nearly 100% or more above its long-term average of 10%.

We can also see how the VQ had not substantially increased in 2015 when the SSI gave a signal to exit. Could that lack of significant rising volatility in 2015 have been an indication to stay in the market instead of exit? Possibly … but that research question will have to wait for another day.

I do want to point out that applying the research above to our SPX + SSI system did not have any impact on the results that the system produced. At this point, it is just interesting to see how significant increases in VQ often precede long-term rallies. The final application of this research still remains to be uncovered.

On the other hand, the second piece of research I asked my team to apply had a decisive impact on the results. The research in question is our study on when to add to a winning position.

I don’t have time to review that research in detail here. You can review the article at the link above if you want the nitty gritty (and it admittedly does take a little work to understand). The upshot is to add to a winning position after every 2 VQ’s of gains.

The chart below shows how that looks on the S&P 500. The green arrows are the initial SSI entry points and the blue arrows are points at which we added additional legs to the winning positions.

How did this stock market indicator strategy of adding to our winners perform? It added another 100% of gains beyond the original 100% improvement of just the SSI itself.

Pretty remarkable, isn’t it?

What really excites me about this, besides the obvious profit potential, is that it all perfectly captures my fundamental behavioral insights on investing.

  1. We have a bias towards our losers that is hard to see at first and even harder to overcome. We have to learn to cut our losses … and stay in our winners. Even the simplest of trailing stop strategies can help us accomplish this. Our volatility-based trailing stop strategies do it better than anything else I have seen.
  2. The stock market has momentum. What goes down often keeps going down and what goes up often keeps going up. It’s not true all the time but it is true more often than not. It’s better to add to winners than it is to add to losers.
  3. It’s best to decide how much to invest based on how much we’re willing to lose if we’re wrong rather than on how we feel about the investment.
  4. The stock market can stay irrational longer than we ever expect. It’s better to limit the role that our thoughts and feelings have upon our decision making. (Note that I said “limit” rather than “eliminate.”)

That’s all folks. 15 years of research and 200% alpha … all grounded in fundamental truths of behavioral finance that you can take to the bank.

Happy New Year!


Richard Smith, PhD
CEO & Founder, TradeStops

Managing Your Alert Notifications in TradeStops

One of the key components to managing the positions in your portfolios is the ability to get alerts when your stocks hit certain targets. And TradeStops lets you set up an almost infinite number of alert types.

The default alert for individual positions is the Stock State Indicator Alert (SSI Alert). This alert is actually five alerts in one. It lets you know when a stock has triggered an SSI Entry signal, when a stock has triggered an SSI Stop signal, and three different alerts when the stock moves into the SSI Yellow Zone. These include whether the stock is up trending, sideways trending, or down trending.

This is the way it looks when the SSI Alert is being set up.


If your accounts are synchronized, you might not even know that these alerts are set up automatically.

But sometimes, less is more. As the market’s climb has paused recently, we’re seeing some stocks trade in narrow ranges, and this can cause new alerts to be triggered several times a week as a stock moves above and then below a certain target price.

Here’s an example.

XLV is the ETF for the Health Care sector. Here is a 3-month chart of XLV.


The stock was in the SSI Green Zone at the beginning of October. Since the middle of October, the stock has moved from the Green Zone into the Yellow Zone and back into the Green Zone. This stock movement has caused 11 SSI Alerts to be generated in the past several weeks.

Each of these alerts are then sent to your email address and your cell phone (if you have the cell option turned on). Multiply this by 50 or 100 stocks, and it’s easy to see how clogged up your inbox can get.

Many of our members have asked if there’s a way to be notified of just two things. They want to know when a stock has triggered an SSI Entry signal, and is moving from the Red Zone to the Green Zone. And they want to know when a stock has triggered an SSI Stop signal, and is moving from the Green Zone to the Red Zone.

This removes the clutter from your inboxes and only alerts you when actionable alerts have been triggered.

It’s easy to do. The first thing we’ll want to do is go to the Templates page. That is accessed in the upper right hand corner of the TradeStops site.


After getting into the Templates page, it will most likely look like this:


The Stock State Indicator is the default. Let’s set up a new default that will only trigger when a stock hits the SSI Entry signal or SSI Stop signal. Just click on the “Add Template” button and by default, it will open on the SSI Alert screen. Click on the “Show Additional Settings” link.


Now, unclick the three boxes that show the SSI Yellow Zone. Then click on “Add Alert,” name the new template, check the “Make Default” button, and then “Save.”


After clicking “Save,” this is how it now shows up in the Templates page.


We’re now set up to make easy changes in our portfolios. Here’s a sample portfolio that contains the XLV example from above. This portfolio shows all of the Sector ETFs, and they all have the normal SSI Alerts. This is how it appears on the “Alerts” page.


By clicking on the box in the upper left hand side, it will highlight all of the boxes. You can then delete all of the alerts. The TradeStops program will ask you if you want to do this.


You’ve now removed all of the standard SSI Alerts. It’s really easy to add the new “Green Zone/Red Zone only” alert that we created earlier. Just go to the “Positions” tab and check the box at the upper left hand side again and click on “Add Alert.”


The last thing you’ll do is click on the alert you want, and you’ll have set up this alert for every position.


It’s that easy. Now you’ll only recieve the alerts that matter to you most.

If you have any questions, please contact our Customer Success team at your convenience.

Best wishes for the beginning of 2017 and your investing success.

Tom Meyer
Education Director

Alarming Signs of a Current S&P 500 Top

I have repeatedly gone against the grain this year and called for higher US stock market prices when everyone else was calling for the sky to fall. Today, I’m seeing alarming signs of a possible current S&P 500 top.

As for our bullish calls this year, let me briefly revisit them. There was:

  • The SSI entry signal on the S&P 500 back in April.
  • The post-Brexit rally / Ameribuy call in July.
  • The most remarkable trade of the year call in October.
  • The Trump rally call in November.

All throughout the year, I cautioned readers against buying too much into the “sky is falling” narrative. So why am I warning of a possible top today? Let’s take a look.

My biggest concern about the ability of the current rally to continue comes from my time-cycles analysis. All year long the time-cycles have been very accurate … and they’re currently signaling a top in January.


As I’ve said many times before, I use time-cycles to know which way the wind is blowing. Just because the winds might be blowing south, doesn’t mean by itself that the stock market can’t keep heading north. There are other reasons, however, to be cautious.

Our “smart-money” sentiment indicator, the commercials commitment of traders report, is also signaling headwinds ahead for the stock market. The smart-money market players have been hedging their bets on this rally most of this year … and they continue to do so today.


Commercial hedgers can be wrong for months at a time (they have a lot more staying power than most of the rest of us) but eventually they tend to be proven right (and collect their winnings accordingly).

Finally, our volume-at-price analysis shows that the S&P 500 has built up a significant amount of overhead volume here at the 2,250 – 2,275 level. It’s not an overwhelming resistance but it is enough to require some extra oomph to break above these levels and I just don’t see where that extra energy is likely to come from.


Let me end by reminding us all that “staying in your winners” is one of the cardinal rules of the TradeStops system. The SSI indicator on the S&P 500 is still solidly in the green zone … and that isn’t to be taken lightly.


But it is most certainly a time to be cautious … and not overreach for more stock market gains. The S&P 500 is up nearly 10% since Trump’s election victory. No one really knows what a Trump presidency is going to look like. I’m not even sure the Donald himself knows.

At a minimum, there is bound to be some turbulence along the way … and my indicators are suggesting that it is probably time to turn on the “fasten your seatbelts” sign.

As my colleague Tom Meyer suggested earlier this week, it’s a good time to make sure your portfolio is ready to weather any storm.

It’s been a great year here at TradeStops. I’m very proud of what we’ve accomplished and very appreciative of your confidence and your business.

I wish you all a happy and prosperous 2017,

Richard Smith, PhD
CEO & Founder, TradeStops

How to Invest Like a Pro in 2017

With only a few trading days left in 2016, many investors are making their resolutions for 2017.

“Next year I’ll follow the trading signals.” “In 2017, I’ll get rid of the stocks that are hurting my portfolios.” “I’ll set up my portfolios for the best return possible really soon.” And the big one, “Next year I’ll stop being so emotional with my stock picks.”

Why wait? There’s no better time than the present to look at your portfolio in the same way that a professional would and figure out how to invest like a pro in 2017!

Have any losses from 2016? Then consider “harvesting” those losses. Tax-loss harvesting means selling the stocks that are losing money. You can use these losses to offset the capital gains you’ve made in other stocks throughout the year. If your losses are more than your gains, you could potentially carry forward these losses into 2017 and beyond.

After a pro has finished harvesting his losses, the next thing he does is take a look at his portfolios and determine if he is invested too heavily in one or two sectors. The TradeStops Asset Allocation tool can help you with that. It gives you a quick overview as to how you’re invested from a sector or industry perspective.

This sample portfolio has over 34% invested in the consumer discretionary sector. Having that much money in a single sector could mean that it’s overweighted in your portfolio.

how to invest

The next thing that a professional would do is to see if there are any potential “time bombs” in his portfolio. These are stocks that could damage a portfolio by pulling down overall returns. These stocks should be considered for removal from the portfolio.

TradeStops Premium makes this task simple. Just go to the Risk Rebalancer and have all of the stocks that are in the SSI Red Zone removed from the portfolio. The Rebalancer will reallocate the funds from these potentially destructive stocks into those that are better-positioned to move higher.

Here’s a sample portfolio that has 11 positions, and 3 of those are in the SSI Red Zone.


We can remove the stocks that are in the Red and reallocate the funds into the stronger stocks.

And we’ll take the exact same dollar risk per position. This is how a pro is able to stay in trades for a longer period of time and maximize the potential gains.

This is what the same portfolio looks like after removing the red and right-sizing the remaining positions.


In this example, there is $1422 of risk in each stock. That means you can own 321 shares of GE but only 34 shares of NFLX.

If the only thing you did this year was to rebalance your portfolio so that you’re right-sizing your positions and taking the same amount of dollar risk in every trade, the long-term results could be outstanding.

Here’s an example of one investor who went from a loss of $100,000 to a gain of almost $60,000 just by right-sizing his portfolio.


I’ve heard predictions for 2017 that run the gamut from new all-time highs at the end of the year to portfolio-crushing bear markets. I don’t know if either of these will be correct or if somewhere in the middle is the more likely outcome.

I do know that by managing your portfolio like a pro using the TradeStops tools, you’ll give yourself the biggest opportunity to succeed profitably in the years to come.

Here’s to profitable New Year’s resolutions,

Tom Meyer,
Education Director, TradeStops

The DPZ Domino’s Pizza Trade – Slice by Slice

Last week, Dr. Smith wrote How to make a killing in pizza. He discussed a trade in Domino’s Pizza (DPZ) using the tools and research that have been introduced this year in TradeStops.

Today we’re going to slice that trade and show you the step-by-step process he used to make this happen.

The chart shows that DPZ hit a low in 2008 below $4 a share. It triggered an SSI Entry signal in early 2010 at just under $10 a share and has been moving higher ever since. (Note that the chart uses a log-scaled “y” axis … each gridline is a 100% gain.)


This is a great example of the power of investing with momentum and “unlimiting” your gains by staying invested for as long as the stock continues moving higher.

Another important element in the success of investing in DPZ is the concept of “doubling-up on the way up.” This means adding to the position every time the stock moves 2 Volatility Quotients higher (for instance, if a stock trades for $100 and the VQ is 10%, then the stock must rise 2 x 10%, or 20%, before adding to the position).


Another element that made this trade so compelling was the pent-up momentum in the stock after crashing in 2008. The Volatility Quotient spiked throughout 2008 from the 20% level to above 40% and plateaued there until 2011 when it began moving lower. Our research has shown that these types of moves can act as fuel to propel a stock higher over a multi-year period of time.


We determined that at each entry point along the way, we were going to buy $250 of risk. In other words, we wanted to take $250 of risk in each purchase of DPZ. How did we figure out what the investment should be?

The Position Size Calculator makes it easy. Here are the parameters we want to use to determine the amount of stock to buy. For the initial purchase of DPZ in 2010, the price of the stock was $9.73, and the Volatility Quotient for DPZ was 43.13%. This is how we set it up in the Position Size Calculator.


Why did we use a Trailing Stop of 43.13%? Because that was the VQ for DPZ at the time that the SSI Entry signal was triggered in 2010.

Now let’s calculate this and see how many shares we could buy.


The analysis shows us that we could invest $574 and buy 59 shares of DPZ for our $250 of risk.

You can do the same analysis for the other six purchases of DPZ. Remember, you’re only going to take $250 of risk in each position.


And here are the results through December 15th of buying just one time when the SSI Entry signal was first triggered vs. buying at the Entry signal and then each time that DPZ moved 2 VQs higher.


And here are the results through December 15th of buying just one time when the SSI Entry signal was first triggered vs. buying at the Entry signal and then each time that DPZ moved 2 VQs higher.

This chart shows the results of each purchase.


We’ll be giving you more examples of this type of trading strategy in the future.

Nobody knows how long a stock can continue to move higher. And at some time the run will end. But in the meantime, we need to find ways to make as much profit as possible as our “once-in-a-lifetime” stocks climb higher.

And TradeStops will be here to help you Make More and Risk Less.

Best wishes from all of us at TradeStops for a healthy, happy, and prosperous 2017.

Tom Meyer
TradeStops, Member Services

When will the pain end for gold investors?

Since the US presidential election, the US dollar has headed straight up … and gold has headed straight down. When will the pain for gold investors finally end? I think sooner rather than later, though a lot depends on the fate of the US dollar.

Since late spring / early summer, when the US presidential campaign really began heating up, the negative correlation between gold and the USD has been startling. In fact, the negative correlation dates all the way back to mid-2015.


A year ago, gold was at its lowest point of the year, trading in the $1060 range. It moved higher in the first half of the year and topped at the $1360 level in the first week of July.

On the other hand, the US Dollar was trading near a high one year ago and moved down to the 93 level at the end of June. Since then, it has been steadily moving higher, culminated by the spike after the Trump election in November.

The SSI chart for both gold and the USD tell the same story as well.

Gold had a great run for the first half of 2016, but, as we feared, has been suffering since July.


The USD, as we predicted, bottomed over the summer and has been on an absolute tear this fall. It triggered an SSI entry signal in November right after Trump’s election.


The volume-at-price (VAP) charts that we like to look at for support and resistance don’t offer much encouragement either, I’m afraid.

Gold moved lower underneath an area of support in the $1150 range and now looks to have a downward momentum to the $1070 level.


On the other hand, the dollar is in no-man’s land after its spectacular rise. There is no resistance in place at this time to stop its move higher.


That’s the bad news for gold investors looking for some dollar downside and gold upside. Looking out a bit further into the future, however, it’s not all doom and gloom. In fact, there are some reasons to be seriously optimistic.

The commercial traders of the dollar seem to be locking in prices as the Commitment of Traders report shows bearish holdings by the hedgers on increasing open interest.


Look at what happened in late 2014 and early 2015 as the traders held large bearish positions at the same time that open interest was increasing. This pattern seems to be repeating now.

My time-cycles forecast for the dollar remains bullish, into the early part of 2017 but strongly suggests that we should see a top in the dollar rally in the next 30 to 45 days.


As for gold itself, I’m waiting for the commercials to build a bigger position before I get super-bullish but the long-term cycle in gold is definitely heading up, and commercial players have begun accumulating a new position.


When gold does bottom and finally start its long awaited ascent, …I think that it’s going to be huge.

May your holidays be merry and bright!

Richard Smith, PhD
CEO & Founder, TradeStops

How to make a killing in pizza

I was in college in the late 80’s when Domino’s Pizza was the fastest growing franchise business in the country because of their promise to deliver a pizza to your door in 30 minutes or less.

It was clearly a quantity over quality play … and the lack of quality caught up with them. For me, Domino’s was what you ordered when there wasn’t anything else available.

That’s why I was astonished when I asked my team to find a great example of a stock that captured some of the highlights of our research this year … and they came back to me with DPZ – Domino’s Pizza.

Unbelievably, DPZ went from a low of $3.86 per share back in late 2008 to a recent high of $169.24 per share. That’s a gain of over 4,200% … a 42-bagger. Here’s the latest SSI chart on DPZ. (Note that the chart uses a log-scaled vertical axis … each vertical gridline is a 100% gain.)


Those are the kinds of profits that all of us need to experience at least a couple of times in our lives as investors … and they are exactly the kinds of profits that the tools of TradeStops are designed to capture.

TradeStops triggered an SSI entry signal on DPZ way back in January 2010 at just under $10 per share … and it hasn’t been stopped out since.

I love seeing these kinds of charts because I know that had I been faced with an SSI entry signal at $9.85 per share on a stock that had been trading at $3.86 per share just a year ago, it would have been hard to pull the trigger.

Who wants to buy a stock that is already up nearly 200%? Today I can happily say, “I do!”

Clearly, DPZ is a great example of the research we’ve been sharing this year on the power of Going Green. Had you bought when the SSI on DPZ first turned green back in early 2010, you’d be sitting on gains of over 1,500% today. That’s the kind of green that anyone can love.

DPZ also beautifully demonstrated how a buildup in volatility “energy” can be a trigger of multi-year gains. Over the past 20 years, the average VQ on DPZ has been 25%. That’s reasonable volatility.


From 2007 to 2010, the VQ doubled from a low of 20% to over 40%. For the past 6 years, DPZ has been feeding off that peak in volatility to fuel its multi-year profitable trend.


The final piece of our 2016 research that is illustrated by our DPZ example is the concept of adding to a winner. We introduced this idea in our November piece on Doubling Up … On your Winners.

It’s a very common practice to “double down” on investments that have fallen in price. It’s almost unheard of to “double up” on winning investments. Our research showed that this can be a very powerful strategy.

Had we followed our “add to a winner every 2 VQ’s” on Domino’s, we would have added another leg to our position at each of the blue arrows here.


The chart below shows the extra profits that this “adding to winners” strategy could have generated in DPZ. All of the “buys” used in this study are based on a risk of $250.

The black line is the profit generated from buying once at the initial SSI entry signal. Risking $250 back in 2010 generated profits of about $9,000.

The blue line is the profit generated by adding to a winner and risking an additional $250 every time DPZ made another 2 VQ’s of gain.


These types of gains don’t happen often. I’ve said a number of times that to be a successful investor, you must know how to “unlimit” your gains. In other words, let your winners run for as long as they will keep moving higher … and consider adding to your winners along the way.

Domino’s may be known for delivering pizzas, but TradeStops is known for delivering profits.

To tasty investments,

Richard Smith, PhD
CEO & Founder, TradeStops

Know the right amount of risk

Last week, TradeStops introduced its last major upgrade of 2016. Our development team upgraded the Position Size calculator to make it more user-friendly and to give you more information at a glance.

The Position Size calculator now lets you determine either how much risk you’re taking in a position based on your total investment or how much you should invest in a position based on the amount of risk you’re willing to take.

Let’s take a look.

The Position Size Calculator is in the same place as it was before. Just click on the “Research” tab and then on the “Position Size” tab. Here’s what the screen looks like.


(Click on image to enlarge.)

Now let’s look at each section. For this example, we’ll use Facebook (FB). FB triggered an SSI Entry signal in April, 2014 and has been moving higher all this time, more than doubling in price. The most recent high on the stock was in October and the stock has moved a little lower in the past two months. It’s still a long way from its SSI Stop price of $103.70.


In the top section of the Position Size calculator, we’ll enter the symbol FB. The Entry Price box will automatically be filled in with the previous day’s closing price.


If we want to enter a different price, we can go in and change it manually. If we want to look at an option or if we want to consider a short position, all we have to do is click those boxes.

The middle section allows us to look at FB from two perspectives. First, let’s look at how many shares of FB we can buy if we know how much money we are willing to risk. Let’s assume that we are taking $1500 of risk in each stock. So, we’ll click on the “Risk” box, then we’ll select the “Custom” box, and we’ll enter $1500.


We’ll come back to the “Invest” box in a moment.

Now, let’s look at the bottom section. The Position Size calculator lets us look at different stops based the SSI Stop price, the VQ of the underlying stock, a percentage trailing stop of your choosing, or a set stop price. We’re going to look at the SSI Stop price. To do that, we just check the SSI box.


Then we press the “Calculate” button.

The analysis tells us that if we are willing to take $1500 of risk in FB, we can buy $10,610 of FB stock or 88 shares.


(Click on image to enlarge.)

Now, let’s go back and change the entry on the middle section. If we know how much we want to invest, the Position Size calculator will let us know how much risk we’re taking in that investment.

In this case, we want to invest $15,000 in FB. How much risk will we be taking?


Now, when we press the “Calculate” button, we can see that if we were to invest $15,000 into FB, we’ll be taking $3329 of risk.

(Click on image to enlarge.)

It’s that simple! We recommend that you take a few minutes to try this out and familiarize yourself with these new capabilities. The Position Size calculator can help you know exactly the right amount of money to invest in any new position, whether it’s a risky stock or a conservative stock.

Best wishes for a healthy, happy, and prosperous New Year with TradeStops.

Tom Meyer
Member Services