If ya don’t have a plan to get out when ya get in… you’re in trouble.

Forrest M., first TradeStops customer

For the last couple of weeks we’ve been taking a look at the big picture of what it takes to become successful investors and how all of the new tools that we’ve added to TradeStops this year can help.

In Part I of this series, we looked at the core investor imperatives of:

  1. Learn to cling to our winners instead of our losers; and
  2. Put more of our capital to work in more conservative / less volatile investments and just the right amount of capital to work in more speculative / higher volatility investments.

I can’t repeat myself enough on these two points. They are the foundation of success.

I recently had the pleasure of speaking with our first-ever TradeStops customer, Forrest M. (I’ve abbreviated his last name for privacy reasons). Forrest signed up for TradeStops ten years ago and is still a big believer in TradeStops. I asked Forrest what convinced him to sign up for TradeStops and he shared with me a familiar story which I’ve got to quote at length.

About 1996, I bought some shares of Uniphase, which became JDS Uniphase. I bought a couple hundred shares of it for about $8,000. Well, that stock kept splittin’ and I sold a couple hundred shares along the way, enough to get my money back, but I still had about 2,400 shares from all those stock splits. At one time that sucker was about half a million dollars for me.

I sat on it and sat on it and it would go down and I would keep telling me myself that that was a good stock and it’ll go back up. Well, you know the story… it didn’t go back up and in the end I probably sold those shares for about $8,000. I just got sick of it. I had already got my money back earlier so I didn’t have anything to lose buy my profits. Boy did I lose my profits – darn near all of ‘em.

I met you just about the time that all of this was going on and when I heard you talk I said to myself, “Boy this sure makes sense and if I’d been smart enough to know this I’d a been a heck of a lot richer than I am right now.”

Couldn’t have said it better myself Forrest.

What truly impressed me about Forrest is when I asked him if he had managed to follow a disciplined investment strategy since he signed up for TradeStops and told me that he had indeed and that his TradeStops account is showing open gains of nearly 90% across all of his portfolios.

So again, focus on the foundations. Make sure that you’re following a disciplined investment strategy.

Every level of our TradeStops service provides the tools to build this foundation with simple trailing stops, volatility based trailing stops (VQ Trailing Stops) and volatility based position sizing.

In Part II of this series, we looked at some of the advanced tools that TradeStops Pro now offers including the fully automated Smart Trailing Stop system, the Re-Entry Rule, Smart Moving Average and the soon to be released TradeSmith’s Indicator or DSI. These advanced tools provide TradeStops Pro subscribers, with key timing indicators based on my proprietary research to know if an investment is behaving well, if it’s a good time to enter a position and when it’s safe to get back into a position that was previously stopped out.

These core TradeStops Pro indicators are like filters that further refine your ability to make sure that you’re giving yourself the best chance of success when it comes to individual investments.

This week, I’m going to finish up by reviewing the key services that TradeStops offers to help you make great portfolio level decisions on your path to success.

Portfolio Volatility Quotient

One of my absolute favorite new tools in TradeStops Pro is the portfolio level VQ Analyzer. It’s available in the Research section of TradeStops Pro.

Last month, in another article, I wrote about a hypothetical $100,000 portfolio made up of 10 stocks with different volatility based position sizes. Here’s how that portfolio looked at the end of our exercise:

sample portfolio

Running this portfolio through our portfolio VQ Analyzer shows the following fascinating picture:

successful investors

About 60% of the portfolio is in low risk stocks, 34% is in medium risk stocks and 6% is in high risk stocks. The overall volatility of this portfolio is just 10.3%. Interestingly, that’s lower than the lowest VQ on any of the individual investments in this portfolio.

How can that be?

Well, this is a well-constructed portfolio in which the whole is greater than the sum of the parts. The component investments of this portfolio interact well with each other. In mathematical terms, the component investments are not highly correlated. They don’t all move together at once. At any given point in time, some are moving up and others are moving down… and that’s a good thing. It lowers the overall volatility of the portfolio.

(Note … you may have seen that when I first wrote about this portfolio a couple of months ago, the Average VQ showed as 16.1%. We have since further refined the Portfolio VQ algorithm to account for the interaction amongst the component investments.)

Knowing that this portfolio has a VQ of 10.3% gives you confidence that you shouldn’t have to stomach much more than a 10% drawdown in the overall value of this portfolio. That’s good to know. It helps you to make sure that you’re positioned in your personal risk comfort zone.

You can also try adding other positions to your portfolio and seeing how it impacts the overall portfolio VQ. For example, GDXJ, the ETF of junior gold miners, is a volatile investment with a high risk VQ of 40.8%. I tried adding $10,000 of GDXJ to the above portfolio and it increased the portfolio VQ% from 10.3% to 10.9%. Good to know!

TradeStops Newsletter Center

The new Newsletter Center in TradeStops Pro is still a work in progress but it has huge potential. Many of you know that I’m personally a big believer in quality financial newsletters. I’m convinced that they can be a powerful ally to the self-directed investor. But it’s the rare newsletter reader who can strictly follow the newsletter editor’s advice on every recommendation. Most of us that enjoy financial newsletters use them as the first-cut of our investment ideas. Instead of picking and choosing between 10,000 different stocks, we pick and choose between one hundred or so stocks from our favorite newsletters.

This is a great advantage and TradeStops is the perfect companion to a newsletter subscription. With TradeStops you can construct your ideal portfolio from your favorite financial newsletters and you can follow your own disciplined investment strategy.

My back-testing has shown over and over again that self-directed investors can outperform market benchmarks by combining good financial newsletters with TradeStops.

The TradeStops Newsletter Center is an important first step in making this an even more compelling opportunity.

Automatically Added Alerts

Over the years we’ve heard from many of you asking for the ability to have alerts automatically added to all of your new positions. Now you can.

This feature is available in both Basic and Pro versions of TradeStops. It works with synchronized portfolios – i.e., portfolios that we download from your online broker. To enable this service, go to Settings and then to General Settings. Under the Program Options section, set Create Alerts Automatically to Yes.

Once you’ve done this you will see some additional options to configure which type of alerts you would like automatically added to your new positions. If you’re a TradeStops Pro subscriber you’ll have choices for both Stocks and Options.

successful investors

With this service enabled, the alerts of your choice will be automatically added to any new positions that we detect in your brokerage account.

As we say around here, long before Staples ever picked up on it, “That was easy!”

Looking Ahead

Foundational risk management tools, advanced timing tools and portfolio level support tools… that’s the full TradeStops experience. I’m very proud of all we’ve put together and I am sincerely appreciative of all of you who have expressed your confidence in my work by subscribing to TradeStops. I speak for everyone here at TradeStops when I say that it’s truly a privilege to serve you.

I continue to have lots of ideas of how to improve TradeStops in the coming months and years but I think the next phase in maturity for TradeStops will be in consolidating and maximizing all of the benefits that we’ve added to TradeStops over the past year.

It’s a lot, I know. We’ve come a long way since the early days of simple percentage trailing stops.

TradeStops, as it stands today, is truly a complete portfolio and risk management system. I don’t think that there is anything else out there like it that gives the self-directed investor the tools to manage his or her own portfolio in a simple but powerful way.

While we don’t have any major plans for additional new features this year (other than the soon to be released TradeSmith’s Indicator in TradeStops Pro), we will be working hard to continuously improve your TradeStops experience by improving the design, enhancing the existing tools, providing some intraday updates, making the site more mobile-responsive and possibly even launching a mobile app.

If there are features that are really important to you please do let us know.

To the growth of your wealth,