Equity Risk States – Normal vs Abnormal Risk

High risk is not necessarily a bad thing. Above normal risk is!

SmartStops monitors each individual equity's price movement watching for signs of Above Normal risk based on its own historical trading pattern and price range.

For each of our risk signal families (long term and short term) SmartStops identifies equities as being in one of the following risk states at any given time.

Risk State		What it Means
	Above Normal	The equity has triggered a SmartStop risk alert entering a state of above normal risk. The equity will remain in this state until a reentry trigger is hit, a sign that the risk has returned to normal.
	Approaching Above Normal	The equity is in a normal risk state but its price has fallen and is approaching its SmartStop risk alert trigger price.
	Normal	The equity is in a normal risk state. The equity price range and trading pattern is as expected for this equity.

High Risk vs Above Normal Risk

We all make buying decisions based on risk / reward analysis. While some equities may have a high beta and high variance, traditional indicators of high risk, the opportunity for high rewards may make them good investments. For example, Apple (AAPL) may be considered a higher risk equity than Walmart (WMT), but either one may be an attractive or unattractive investment based on the individual risk / reward opportunities they present.

Unfortunately, risk does not remain constant over time. For both high risk and low risk investment opportunities, if the risk changes while the potential reward remains the same, the risk reward analysis will no longer be valid.

So how do you know when the risk / reward equation may have changed? Watch for periods of abnormal risk.

SmartStops analyzes each individual equity’s historical trading pattern and price range to determine an expected “Normal” price range unique to that equity for the next trading day. High variance equities will have a larger “Normal” price range than low variance equities. The SmartStops algorithms further tune the results based on an equities current strength or weakness. SmartStop risk indicators are designed to identify and alert investors to periods of above normal risk enabling timely action to protect gains, limit losses and improve returns.

SmartStop Risk Indicators can be used in conjunction with traditional risk indicators and financial analysis to make more informed and timely investment decisions.