It’s been almost two years since we introduced our Pure Quant Portfolio Builder to TradeStops members. The Pure Quant methodology is the culmination of more than a decade of research to find the best way to build and manage a portfolio of stocks and ETFs.

And we just delivered a valuable new source for this tool to further help our members. More on that in a moment.

The Pure Quant methodology uses the set of rules developed by TradeSmith and his research team to remove the noise that can interfere in putting together the best portfolio possible.

Here are the Pure Quant rules that we’ve delivered to you in the past.

  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 historical Volatility Quotient (VQ) of greater than 40%.
  3. If the list of stocks you’re using is from the TradeStops Billionaire’s Club or one of the Newsletter editors, remove all stocks that are trading at a loss since the SSI Entry signal.
  4. If the list of stocks is from your own 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 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 put them in the Risk Rebalancer.

When a stock hits its SSI Stop signal, sell the stock immediately. At the beginning of the next month, determine how many stocks are to be replaced, re-run the Pure Quant tool, replace the open positions with the stocks at the top of the list, and run the entire portfolio through the Risk Rebalancer.

Many of our members have taken advantage of the Pure Quant tool to build a profitable portfolio for themselves.

Last week, we added a new source to the tool. After working with Pure Quant for almost two years, we saw an opportunity to expand the universe of stocks that can be used as a starting point. We decided to take the different markets that we follow in Ideas by TradeSmith and add those to the Pure Quant tool as another data source — just like any of the newsletters you currently follow. Here is how they show up in Pure Quant.

Ideas by TradeSmith indexes in Pure Quant selection tool

Included in the Ideas indexes are those shown above and the following that aren’t shown in the screenshot:

S&P 500

S&P 600

United Kingdom

If you subscribe to Ideas by TradeSmith, you can now use these indexes to greatly expand the number of stocks that are screened by the Pure Quant process.

Let’s look at an example using the S&P 500 (large cap stocks) and S&P 400 (mid-cap stocks) as our inputs. We’ll start with a $100,000 portfolio and limit our selection to 15 stocks.

S&P 400 and S&P 500 filtering selections

Here’s the resulting portfolio.

Results of Pure Quant on S&P 400 and S&P 500

Results of Pure Quant on S&P 400 and S&P 500

Asset Allocation for Ideas by TradeSmith Pure Quant portfolio

It also has a very low Portfolio Volatility Quotient (PVQ) of just under 10%.

PVQ for Ideas by TradeSmith Pure Quant portfolio

We’ll discuss this addition to the Pure Quant data sources and show you how you can use it to your advantage during our next educational webinar on Wednesday, Jan. 30, at 1 p.m. ET. Click here to register.


Tom Meyer
Education and Research Specialist