At last week’s Stansberry Conference, several dozen TradeStops members made it a special point to congratulate us on all the improvements we’ve made in such a short period of time. It was nice to hear that we’re making a difference for so many people.
A number of people were also complimentary, but commented that they just hadn’t had a chance to catch up on all of the changes and wondered if we could summarize these. Since we’ve also added a large number of new users in the UK and throughout the world, this seems like a good time to get everyone caught up.
The two biggest changes we’ve made the past several months are the introduction of the Stock State Indicators and the tremendous upgrades to the Risk Rebalancer. We will discuss the Stock State Indicators today and give you more information about the Risk Rebalancer next week.
Let’s look at the Stock State Indicators first. TradeSmith has said that he considers these indicators to be key to helping investors understand the Life Cycle of Stocks. There are only three different indicators. And they’re easy to understand. A stock trends higher for a while, then the uptrend starts moving lower, and finally the uptrend is broken. There is no set time for any of this to happen.
That’s what makes investing such a challenge. How do we know the difference between normal volatility and when that volatility has caused a change in direction? The Stock State Indicators are here to help.
SSI Entry Signal (Green) – Two events need to occur to trigger the SSI Entry signal. The stock must be at least 1 VQ% above its most recent low and the SSI Trend Line must be moving higher. This is a very conservative entry signal and tells us that the stock has definitely entered into a new uptrend phase.
The number and letter inside the green rectangular box tells us how many days, weeks, or months the signal has been triggered. In the example above, the Entry signal was given more than 4 months ago.
By requiring two different triggers, we avoid the head fakes that can be portfolio killers. Look at how this kept us out of Gold for three years when the price of Gold was falling. We first printed this chart in February.
SSI Low Risk Zone (yellow) – The SSI Low Risk Zone tells us that the stock remains above the SSI Stop, but it has dropped more than 50% from its most recent high. It is called the Low Risk Zone because should a person want to buy the stock at this current price, there is much less percentage risk to the downside. For instance, take a look at ABX (Barrick Gold). ABX is a gold miner and these stocks tend to be very volatile. The Volatility Quotient of ABX is 39.36%. It hit the Low Risk Zone three times in the last month.
For someone who wants to enter ABX at the Low Risk Zone, and keep the SSI Stop at $14.03, the risk is only 20.55%, not 39.36%. That’s why we call it the Low Risk Zone.
By the way, there are three additional designations when a stock is in the Low Risk Zone. These designations have to do with the direction of the SSI Trend Line, the dotted blue line on the TradeStops charts. They tell us if the SSI Trend Line is moving higher, is flat, or if it is moving lower.
SSI Stop Zone (red) – The SSI Stop Zone tells us when the stock has moved 1 VQ% lower from its most recent high. This means that the uptrend that was identified by the SSI Entry Zone has been broken. It does not necessarily mean that a new downtrend has been initiated. After hitting a new SSI Stop, it could take a long time before a new SSI Entry signal is generated.
For new subscribers, seeing a number of their stocks with current SSI Stop signals can be discouraging and confusing. TradeSmith wrote an editorial about this and we recommend that you read it to help you with your decision-making. How to Buy with Red SSI.
The Stock State Indicators are available as alerts that you can set up for any stock or fund that you are following in an Investment Portfolio or a Watch Only Portfolio. This is what these look like:
A big advantage of the SSI Alerts is that they only count as one alert in the number of alerts that you have available, but they act like five different alerts. Each time one of these indicators has been triggered, you will be notified via either email or text message.
We conducted a video webinar recently about the Stock State Indicators and Alerts. That webinar is available here: The Life Cycle of Stocks.
We are continuing to make upgrades to the SSI Signals and will notify you when they are ready for you to use.
Member Services, TradeStops