This is a commonly asked question from our members.

Let’s start by reviewing the Stock State Indicator. The Stock State Indicator is a comprehensive indicator designed to tell you the health of a stock at a quick glance. Think of a traffic light signal (green light, yellow light, red light system).

If the stock is in the Green Zone, it is healthy and is in an uptrend based on historical data.

green SSI

If a stock drops half-way to its stop-out point, it’s in a period of correction. We call this the Yellow Zone. It’s telling you to be cautious, just like when you come to a yellow light on the road.

The Yellow Zone has three levels:

yellow zone

It is possible that the stock can correct from the Yellow Zone and move back into the Green Zone.

However, if the stock continues to move lower and corrects more than its volatility quotient, it has reached the SSI Stop Loss (Red Zone).

This would indicate that the stock is no longer in a healthy state and is moving in a way that is not usual based on historical market trends.

red zone

This is where the volatility quotient comes into play. We have taken several years of price action to determine the stock’s normal expected range or movement in the market.

The Volatility Quotient, or VQ%, tells you how volatile a stock is — in other words, how much room you can give a stock as to not get stopped out too early.

Here’s the breakdown of risk percentages:

VQ risk percentages

The Stock State Indicator

The SSI Trailing Stop Loss tracks the stock’s volatility quotient from a most recently detected highest close price.

As new higher highs are formed, we trail the SSI stop price higher in relation to the stock’s volatility quotient.

The SSI will always use the lowest volatility quotient from the most recently detected highest close price and tighten its stop loss if the stock’s volatility quotient lowers in time.

However, the SSI Stop loss will never lower or widen its stop loss if the volatility quotient of the stock should increase. Therefore, the SSI is our most conservative of risk management indicators.

SSI indicators on chart

The VQ Trailing Stop

The VQ Trailing Stop Loss tracks the stock’s volatility from a most recently detected highest close price on or after your entry date or the start date of the alert if there is no entry date.

The VQ Trailing Stop will lower or widen its stop loss if the volatility quotient of the stock should increase and tighten its stop loss if the stock’s volatility quotient lowers in time.

VQ indicators on chart

The SSI is always tracks the stock’s volatility quotient from a most recently detected highest close price; whereas the VQ Trailing Stop looks to track the volatility quotient from a high close price on or after one’s entry date.  This may not necessarily be the same as the most recently detected highest close price.

In the above example, you can see that the SSI Stop Loss is tracking the volatility quotient from a different high close price (red “H” bubble) than the VQ Stop Loss high close price (purple “H” bubble).

The SSI and VQ are both track the stock’s volatility quotient. If we track the volatility quotients from different high close prices, the stop losses for the SSI and VQ Trailing Stop will differ.

The two most commonly used trailing stops in TradeStops are the Stock State Indicators (SSI) and the VQ Trailing Stops.

The differences between the SSI and VQ Trailing Stop is as follows:

The SSI tracks the stock’s volatility quotient from the most recently detected highest close price.

The VQ Trailing stop tracks the stock’s volatility quotient from the most recently detected highest close price on or after one’s listed entry date.

But, the SSI will not widen or lower its trailing stop loss should the volatility quotient increase over time.

The VQ Trailing Stop will widen or lower its trailing stop loss should the volatility quotient increase over time.

Bottom line, the SSI is the more comprehensive and conservative of our indicators.  Not only does it tell you at a quick glance the health of the stock, it tracks the stock’s volatility quotient from a most recently detected highest close price. It even has a re-entry feature.

So not only does the SSI warn you when it may be time to step aside, it will also alert you when a stock has triggered an entry signal.

How to Set Up a Re-Entry Watchlist

A re-entry watchlist can be created automatically for you. If you enable this feature, closed positions will automatically be added to it with an SSI alert. If the position enters the green zone, we’ll email you about it.

You can set up your re-entry watchlist from the Settings area in TradeStops.

settings

Simply navigate to the Positions area and ensure the re-entry option is enabled to Yes.

set re-entry to yes

This way, if your position enters the green zone, you’ll be automatically notified.

We hope this overview on the Stock State Indicator and VQ Trailing Stops has been helpful. Remember, these tools can help you create an exit strategy and easily follow it – all based on your personal investing style.

Additional Resources