Swing Trader for RUSSELL 2000: Magic Formula & Optimal Structure (FA)

Overview and Suitability: The Swing Trader for RUSSELL 2000 is designed to capitalize on the principles of value investing, specifically targeting stocks within the Russell 2000 index. This robot is tailored for those who are new to trading but eager to apply a systematic approach to identifying undervalued stocks with strong fundamentals. The strategy focuses on analyzing a company's intrinsic value, seeking to find stocks where the market price is lower than the company's true worth. This method, often termed "value investing," is grounded in the belief that such stocks will eventually be recognized by the market and appreciate in value, providing profitable trading opportunities.

Strategic Features and Technical Basis:
Core Strategy: At the heart of the Swing Trader is a dual-layer filtering system that combines two sophisticated analytical models: the Debt Ranking and the Greenblatt Ranking.

• Debt Ranking: This feature identifies and sorts companies based on their financial health and creditworthiness. It scrutinizes the level of debt and the company's ability to manage its obligations effectively, ensuring that only companies with stable financial foundations are considered for trading.
• Greenblatt Ranking: Based on the principles of Joel Greenblatt's "Magic Formula," this component measures a company's efficiency in generating profits relative to its capital. It utilizes two key financial metrics:
  • Return on Capital (ROC): This metric assesses how well a company uses its capital to generate earnings.
  • Earnings Yield: This metric evaluates the company's profitability relative to its market value.

Stock Selection Process: The strategy specifically targets stocks from the Russell 2000 index, which comprises smaller companies with high growth potential. The robot applies the following steps:

1. Initial Screening: Companies are first filtered using the Debt Ranking to ensure they meet minimum creditworthiness standards.

2. Quality Assessment: The remaining companies are then evaluated using the Greenblatt Ranking to identify those that offer a favorable combination of high ROC and attractive Earnings Yield.

3. Trade Initiation: Only stocks that pass both criteria are selected for trading, with the goal of identifying high-quality, undervalued companies poised for growth.

Position and Risk Management: Effective risk management is a cornerstone of the Swing Trader's design. To balance risk and potential reward, the robot employs the following parameters:

• Maximum Open Trades: The robot is configured to manage up to 35 open positions at any given time. This diversification helps mitigate the risk associated with any single trade.

• Stop Loss Mechanism: A fixed stop loss of 25% is applied to each trade, limiting potential losses and protecting capital.

By adhering to these guidelines, the Swing Trader for RUSSELL 2000 aims to provide beginners with a structured, disciplined approach to trading that leverages the robust principles of value investing and sound risk management.

Trading Dynamics and Specifications:

• Maximum Open Positions: Medium, allowing for diversified exposure while managing concentration risk.

• Robot Volatility: High, suited for navigating and capitalizing on market swings.

• Universe Diversification Score: High, indicating a broad array of instruments to hedge against sector-specific downturns and enhance profit opportunities.

• Profit to Dip Ratio (Profit/Drawdown): High, suitable for traders who are focusing either on high profit or low drawdown for potentially higher returns that makes it an ideal for all levels.

• Optimal Market Condition Medium: If the current market volatility is Medium then you should use the Best Robots in Medium Volatility Market (VIX is Medium - this indicator is coming soon).  

Ideal for Traders:

This robot is best suited for traders with a solid understanding of market dynamics and risk management, not recommended for beginners due to the complexity and rapid pace of strategies employed.

Disclaimer:  Disclaimers and Limitations 

Simulated Performance: All simulated performance results are derived solely from real-time calculations using historical data. Algorithms receive minute-by-minute historical prices and other data from Morningstar and generate trades in real time based on these historical inputs, effectively eliminating any hindsight bias. 

Actual Performance: All actual performance results are derived solely from real-time calculations using current data. Algorithms receive minute-by-minute current prices and other data from Morningstar and generate trades in real time based on these current inputs, effectively eliminating any hindsight bias. 

Gross Performance: Gross performance results do not deduct any fees or expenses. These results reflect the total returns generated by the AI Robots without considering the costs associated with accessing the service. 

Net Performance (current performance chart): Net performance results deduct fees to provide a more accurate representation of returns experienced by the user. These deductions can include: Model Fee Deduction: Net performance results may deduct a model fee equivalent to the highest subscription fee charged to the intended audience. Actual Subscription Fees: Net performance results may also deduct the actual subscription fees paid by the user for access to AI Robots.