Stock Picker: Valuation & Profitability Model, Long Only (FA)

Overview and Suitability: The robot is a sophisticated trading robot specifically designed for traders who prefer taking long positions using fundamental analysis (FA). With a focus on valuation and profitability, this robot excels in identifying undervalued stocks with high growth potential. It’s a great fit for both novice and experienced traders, particularly those managing their own IRA accounts. Its strategy is well-suited to traders who favor extended holding periods, typically holding onto positions for longer durations while limiting the number of open trades at any given time.

Key Suitability Features:

• Long positions only: Ideal for investors who prefer buying and holding undervalued stocks.
• Fundamental analysis-driven: Uses a highly structured approach to analyze company financials.
• IRA-friendly: Especially suitable for traders managing retirement accounts.
• User convenience: Signals are sent two hours after the market opens to ensure optimal liquidity.

Strategic Features and Technical Basis: This robot has a three-pronged approach to fundamental analysis that ensures the selection of stocks based on their intrinsic value and profitability potential. Here’s an in-depth look at its technical strategy:

Unique Fair Value Assessment Method

At the heart of Trend Trader Pro is its proprietary Fair Value Assessment Method, inspired by Benjamin Graham's value investing principles. This method combines Graham’s time-tested approach with cutting-edge mathematical algorithms to evaluate the fair market value of stocks.

• Stock Screening: The robot scans all stocks listed on the US stock exchanges, narrowing down companies that are significantly undervalued.
• Focus on undervalued companies: Only those stocks that meet strict criteria for being undervalued are passed on for further analysis.

Proprietary Comparative Profitability Analysis

Trend Trader Pro’s comparative analysis takes into account key profitability indicators such as:

• Total Revenue
• Net Income
• EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)

By evaluating the historical and dynamic changes in these metrics, the algorithm ranks companies, ultimately selecting the top 30 most profitable companies for potential positions.

• Dynamic Ranking System: Each company’s financials are ranked using an advanced proprietary scoring system.
• Focus on financial strength: Companies that show robust profitability, based on these indicators, are given higher rankings and are more likely to trigger a buy signal.

Profitability Analysis Inspired by Ian Wyatt

Inspired by the investment strategies of Ian Wyatt, this aspect of the robot’s strategy emphasizes profitability growth:

• Metrics like Operating Income and Earnings Per Share (EPS) are closely examined to identify companies that not only have strong profitability metrics but also exhibit accelerating growth in these indicators.
• Selection Process: Companies demonstrating stable profitability as well as rapid growth in these metrics are flagged for potential positions. This helps ensure the robot identifies stocks with upward momentum and long-term growth potential.

Algorithmic Trading and Automation

Once a stock is selected, Trend Trader Pro handles the execution and management of trades automatically. The robot is configured to:

• Place fixed Stop Loss orders: A 20% stop loss is automatically set for every trade to mitigate potential downside risks.
• Monthly Position Review: At the start of each month, the algorithm reassesses the rankings of held stocks. If a stock's rating falls below the defined threshold, the position is closed even if the Stop Loss is not triggered.

This methodical, rules-based system ensures disciplined and calculated trading, reducing emotional decision-making.

Position and Risk Management

Position Sizing

Each trade initiated by Trend Trader Pro uses a fixed position size of $2,500 per trade. This is designed to provide a standardized approach to capital allocation, which is crucial for maintaining a balanced portfolio and risk control.

Risk Management via Stop Loss

Trend Trader Pro employs a fixed Stop Loss order of 20% of the opening price for every position opened. This is critical in protecting against excessive losses, especially in volatile markets:

• Why 20%? The 20% level strikes a balance between allowing some price fluctuation (to avoid premature sell-offs) while still cutting losses at a manageable level.
• Automatic Execution: Once a Stop Loss is placed, it requires no further action from the trader, as it is executed automatically by the robot.

Monthly Rebalancing and Review

Every month, the algorithm performs a comprehensive review of all currently open positions:

• Re-evaluation of stock ratings: If a stock's ranking falls below a certain level, the position is automatically closed to preserve capital and limit exposure to underperforming assets.
• Proactive closure: Positions can be closed even if they haven't hit the Stop Loss threshold. This dynamic management ensures that capital is only tied up in stocks that continue to meet the robot’s profitability and valuation criteria.

Limited Open Trades

One of the standout features of Trend Trader Pro is that it limits the number of simultaneous open trades. This approach ensures that traders do not over-diversify or overextend their portfolios, keeping the focus on high-quality, well-researched stock selections.

Signal Timing for Maximum Liquidity

To maximize efficiency and liquidity, signals for new trades are generated two hours after the market opens. This timing aligns with market conditions that typically stabilize after the initial flurry of activity during the market opening. It gives traders a better chance of entering positions at optimal price points.

Trend Trader Pro is a powerful, systematic trading robot that leverages the principles of fundamental analysis to select and manage long-only stock positions. With a sophisticated valuation and profitability framework, it’s tailored for investors seeking stable, long-term returns. By combining a unique fair value assessment method, advanced profitability analysis, and a robust risk management system, it offers a reliable and disciplined approach to stock selection. The inclusion of fixed Stop Losses and regular portfolio reviews ensures traders can manage their risks effectively, while its straightforward, IRA-friendly strategy makes it a perfect fit for both new and experienced traders alike.

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: 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 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.