The Science Behind SmartStops

Volatility varies from stock to stock, and what might be normal price movement for one equity may not be normal for another. High risk is not bad when it is paired with a high potential return. What is bad is abnormal risk. The SmartStops risk alerts are designed to detect and trigger when Abnormal price weakness is detected indicating a period of elevated or abnormally high risk.

Updated SmartStops are calculated and published at the end of each market day and optimized for use during the next trading day. The calculations take into account each equity’s trading history, individual volatility and current strength or weakness and intelligently adjust accordingly to optimize performance. During periods of strength, SmartStops loosen, helping to avoid whipsaw and keep you in an uptrend longer. As an equity begins to move sideways or decline, SmartStops tighten to increase protection. Read more about How To Use SmartStops.

Aggressive vs. Conservative Risk Signals

For each equity covered, both an Aggressive and a Conservative SmartStop price is published.

Aggressive SmartStops are designed to provide maximum downside protection and typically lie closer to the equity’s price. Conservative SmartStops allow for more price movement resulting in fewer trades and a lower probability of whipsaw.

Both signal families intelligently adjust in an effort to keep you in an uptrend longer while exiting early in a down trend. Investors often favor the Aggressive signals for positions they plan to exit in the near future and for which they will not have time to recover should the equity experience a pull back.

Note how the Aggressive Signals lie closer to the stock price, but in a down trend both signal families tighten to get you out early and protect your capital.

The Power of Sidestepping Periods of Elevated Risk

Each day you are long in the market, you are exposed to risk, some days more than others.

By identifying and taking action to sidestep periods of elevated risk, you have the opportunity to protect profits, limit losses and improve your returns.

Be rewarded for the risk you take and improve your return per day in the market

In the GE Example, sidestepping the 3 periods of above normal risk by going to cash reduced your time in the market and associated market risk by 45% while improving your return for the year by 20%.

The lowest value experienced by your investment when following buy and hold was $403. With SmartStops it improved to $903.

What to do when you receive a risk alert?

We don’t always have time to be watching our investments. But if you receive a risk alert on one of your equities, today is the day to look at that one.

• Read the news
• Review the technicals & fundamentals
• Talk to friends, colleagues or your financial advisor
• Take action!

Selling, Hedging, Buying on a pull back or standing pat are all legitimate outcomes of your review. The key is to make a timely and informed decision when the risk state changes.

Make timely, informed decisions and never make an investment decision in a vacuum.

Did you know?

Stock corrections average 23%

The average run of a market leader is only 12 -18 months

Leading stocks correct on average 72% after they’ve topped

Source: Investor Business Daily

Don’t be afraid to sell!