You’re familiar with the way TradeStops helps you understand and manage risk, both with your individual stocks and your portfolios. Now let’s look at how you can take the ideas you like the most and build portfolios from them.

If you’ve attended one of TradeSmith’s webinars or live presentations in the past couple of years, you know that he likes to show his rules for building an outstanding portfolio.

Here’s the list:

  1. Stay out of the Red Zone
  2. Keep average VQ below 40%
  3. Only buy if the trade is positive at the time of SSI entry
  4. Maximum number of positions is 20
  5. Minimum number of positions is 10
  6. Keep portfolio risk-balanced at each step
  7. Replace stopped-out position with the next buy

These are the rules built into the Pure Quant tool. But even if you’re not a Lifetime member, you can still use most of these rules to construct a great investment portfolio.

We’ll start out by using some Watch Portfolios that we’ve set up. For this example, we’ll use the top ten holdings in each of the SPDR Select Sector ETFs. I’ve set up a Watch Portfolio for each of the ETFs.

The ten Sector ETFs are:

  • XLB — Materials
  • XLE — Energy
  • XLF — Financials
  • XLI — Industrials
  • XLK — Technology
  • XLP — Consumer Staples
  • XLRE — Real Estate
  • XLU — Utilities
  • XLV — Health Care
  • XLY — Consumer Discretionary

This is how the Watch Portfolios appear on the TradeStops site:


Each portfolio has the top ten holdings of the ETF. Here are the top ten holdings for XLE, the energy ETF.

There’s more information about setting up these Watch portfolios in one of our older videos which can be found here.

Once you’ve set these up, you’ll want to copy all of the positions into a single Watch portfolio. I’ve set up a Watch portfolio called “Sector ETF Holdings.”

Once this is set up, it’s really easy to copy the holdings from each Watch Portfolio. Click the box at the top left of the “Positions” page, click the “Copy” button, and then select the new Watch Portfolio and press “OK.”

You’ll also want to create a Watch Portfolio that will end up being the 20 stocks we’ll use for our Investment Portfolio. I’ve called this the “New Sector ETF Portfolio.”

Once you have copied the positions for all of the individual sector ETF Watch Portfolios, you can then go into the new Sector ETF Holdings Watch Portfolio.

This is where it gets fun. Click on the Stock State Indicator (SSI) column to sort with the SSI Green Zone at the top. This also sorts by the newest stocks in the SSI Green Zone.

Now let’s take the top 20 stocks and check the box on the left-hand side. This will be our new portfolio. We’ll copy these into the New Sector ETF Portfolio.

The last thing we’ll want to do is to run the portfolio through the Risk Rebalancer and save it. This way, we’ll be taking the same amount of risk per position.

Here’s the diversification of this portfolio. We set this up so that the newest stocks in the SSI Green Zone would be a part of the portfolio. It’s good to know that this is about as diverse a portfolio as possible.

We’ll be showing you how to set up these and additional portfolios during our educational presentation next Wednesday, May 2nd, at 1:00 pm Eastern. Click here to register for the webinar.

To your investing success,

Tom Meyer
Education and Research Specialist, TradeStops