It’s been two and a half years since we introduced the Pure Quant Portfolio Builder to our members. Thousands of investors use the Pure Quant tool and tens of thousands have seen this tool. Investors like having a portfolio that is based on a set of rules developed by the TradeStops team.

But once a portfolio is created, it can be a little more difficult to manage that portfolio. That’s what we want to focus on today.

We’ve explained the rules to create a Pure Quant portfolio in the past; to refresh your memory, here they are again:

  1. Remove all stocks with a Red, Yellow, or Gray Stock State Indicator (SSI) signal (only use stocks that are in the SSI Green Zone).
  2. Remove all stocks that have a 30-year historical Volatility Quotient (VQ) of greater than 40%.
  3. If the list of stocks is from the Billionaire’s Club or newsletter editors, remove all stocks that are trading at a loss since the SSI Entry signal was triggered
  4. If the list of stocks is from your own personal Watch lists, remove all stocks that are trading at a loss since the SSI Entry signal was triggered
  5. Sort the stocks by the number of days that they have been in the current SSI state (SSI Green Zone) with the smallest number of days at the top of the list
  6. Choose the number of stocks that you want in your portfolio and run them through the Risk Rebalancer so that you’re taking equal risk per position

All of these rules are built into the Pure Quant tool to help you set up your portfolio. But, if you’re choosing to follow the Pure Quant method, we haven’t yet enumerated a set of rules to help you manage your portfolio — until now.

  1. Always have SSI Alerts in place for all of your stocks.
  2. When a stock moves into the SSI Red Zone, immediately sell the stock. Hold the proceeds in cash or money market.
  3. At the beginning of the next month (or on the same date each month), determine how many stocks you need to buy to maintain your ideal number of positions.
  4. Run the Pure Quant tool again and pick out the top stocks that you don’t already own.
  5. Run the portfolio through the Risk Rebalancer to determine how many shares of each stock you need to buy to maintain risk parity.
  6. Be sure to add the SSI Alerts to the new positions.

Here’s an example of a portfolio that originally had 20 stocks. Three of the positions have entered the SSI Red Zone and have stopped out, so we need to buy three new positions.

sample portfolio with stopped out positions

Now we’re going to run the Pure Quant tool to find the best three stocks to add to the portfolio. Using the same input as before, these are the new stocks that we’ll add to our sample portfolio: Wells Fargo (WFC), Synchrony Financial (SYF), and Deere and Co. (DE).
Now, let’s go to the Risk Rebalancer tool to determine how many shares of these we should add. First, we have to run the tool with the stocks we currently own.

running our sample portfolio through the Risk Rebalancer

Once we get the results, we can add in the new tickers. To do this, go to the bottom of the “Rebalanced Results” tab and click on the “Add Another Ticker” link. This will open a box that allows us to add the new stocks.

add new tickers in Risk Rebalancer

Once we’ve added the new stocks, we’ll click on the “Save and Rebalance” button. You can then sort by any of the “Current” columns to show the new positions at the top of the page.

rebalanced portfolio with new positions

When you add the new positions, the Risk Rebalancer will take the entire portfolio into account and show potential adjustments to be made. Today, with the cost of stock commissions at zero, it’s easy to make all of these adjustments, but you certainly don’t have to.

Personally, I prefer to rarely make changes to my entire portfolio. I currently have both winning and losing positions in the portfolio. My biggest winner is Raytheon (RTN), which is up more than $1,100, and my biggest loser is Flowers Foods (FLO) which is down about $500. I’d like to hold onto RTN as long as it continues to move higher. I don’t want to take away from my RTN position, and I don’t want to add to my FLO position. If FLO stops out, that’s fine, I’ll just buy another position.

As always, if you have a question, you can contact our Customer Success team at 866-385-2076.


Tom Meyer
Research and Education Specialist, TradeSmith