Stock Picker: Profitability Model for Russell 2000 (FA)

Overview and Suitability: The Robot is a specialized trading tool designed for investors focusing on small-cap stocks within the Russell 2000 Index. This index is widely regarded as a key benchmark for tracking the performance of smaller U.S. companies, making it an excellent proxy for the health of the broader U.S. economy. The robot is particularly suited for traders who prefer fundamental analysis (FA) and favor longer-term investment strategies.

Built to accommodate a broad range of investors, the robot is suitable for both novice traders looking to gain exposure to the Russell 2000 and more advanced users, including those managing personal retirement accounts such as IRAs. By incorporating extended holding periods and limiting the number of open trades, the robot provides a more stable and low-pressure trading environment.

Strategic Features and Technical Basis: The robot is powered by a dual-method algorithm specifically developed for profitability analysis. Its focus is on selecting stocks from the Russell 2000 that demonstrate both steady profitability and robust growth potential. Below are the two core strategies that drive this robot:

Proprietary Comparative Profitability Analysis

The algorithm begins with a proprietary method of comparative profitability analysis, designed by a team of financial experts and quants. Using fundamental indicators such as Total Revenue, Net Income, and EBITDA, the robot evaluates the financial performance of companies in the Russell 2000. These profitability metrics are then tracked for trends and dynamics, ensuring that the robot selects companies with both strong and improving profitability.

• Total Revenue: A measure of the total sales generated by the company.
• Net Income: The company’s total earnings after all expenses and taxes.
• EBITDA: Earnings before interest, taxes, depreciation, and amortization, used to evaluate the company's operational efficiency.

After processing this data, the robot ranks companies based on their profitability and selects the top 30 companies for potential trading. This ensures that only the best-performing companies with strong financials are chosen, minimizing exposure to companies with weaker fundamentals.

Profitability Growth Dynamics (Inspired by Ian Wyatt)

The second layer of the robot’s strategy is inspired by the investment methodology of renowned investor Ian Wyatt, who focuses on profitability growth dynamics. The robot tracks indicators such as Operating Income and Earnings Per Share (EPS) to prioritize companies showing significant growth in profitability over time.

• Operating Income: Reflects the profitability derived from the company’s core operations.
• Earnings Per Share (EPS): Shows the portion of a company's profit allocated to each outstanding share, a key measure of profitability for shareholders.

By blending these two approaches, the Trend Trader robot is designed to filter and rank stocks based on both stable profitability indicators and high growth potential. This combination helps to create a diversified portfolio of small-cap stocks with robust upside potential, ensuring consistent performance over the long term.

Position and Risk Management: Position and risk management are critical elements of any trading strategy, and the Trend Trader, Long Only robot employs a conservative but effective approach to safeguard capital while maximizing potential returns.

Stop Loss Strategy

When the robot opens a position, it automatically places a fixed Stop Loss order set at 20% of the opening price. This ensures that if the stock moves sharply against the trader, the maximum loss is limited to 20%, thus protecting against excessive drawdowns.

Monthly Rating Review

Each month, the robot conducts a thorough review of its current holdings. If a stock’s profitability ranking falls below the required threshold, the robot will close the position—even if the Stop Loss has not been triggered. This ensures that only stocks that continue to demonstrate strong profitability are retained in the portfolio, while underperforming positions are exited.

Trading Signals and Execution Timing

To provide a seamless user experience, the robot issues trade signals for opening positions two hours after the market opens. This strategy is designed to capture optimal liquidity, as early morning volatility tends to stabilize by this time, improving execution quality for both small and larger orders. Users who prefer to trade based on the robot’s signals can easily follow along, ensuring they execute trades at the most opportune times.

No Margin Usage

The robot is designed to trade without the use of margin, thereby reducing exposure to excessive leverage risk. This conservative approach is particularly appealing to risk-averse investors who prefer to avoid the heightened risks associated with margin trading.

Transparency and Monitoring

Users can monitor the robot’s trading performance through detailed statistics and equity charts available on the robot’s dedicated page. The interface is split into two main tabs:

1. Open Trades: Here, users can track real-time paper trades made by the robot. This provides full transparency into the positions the robot has chosen and allows investors to follow the logic behind each trade.
2. Closed Trades: In this tab, users can review all previously executed trades, offering a clear view of the robot’s past performance. The data is presented in a user-friendly manner, helping traders analyze the effectiveness of the robot’s strategies over time.

By combining powerful fundamental analysis methods with a rigorous risk management framework, the Trend Trader, Long Only AI Robot offers a compelling solution for traders looking to navigate the often volatile but highly rewarding world of small-cap stocks in the Russell 2000 Index. Whether you are a new trader or an experienced investor managing your own IRA, this AI-powered tool provides valuable insights and disciplined execution to help you maximize your returns in a measured and risk-conscious way.

Trading Dynamics and Specifications:

• Maximum Open Positions: Medium, allowing for diversified exposure while managing concentration risk.
• Robot Volatility: Medium, offering a balanced approach between capturing significant market movements and mitigating sharp declines.
• Universe Diversification Score: Medium High, indicating a moderate 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 able to tolerate and manage greater levels of risk in exchange for potentially higher returns.
• Optimal Market Condition: This robot shows its best performance when market volatility is high, making it particularly adept at navigating turbulent market phases.

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.