Daily Trade Picks Based on Institutional Ratings Coverage

Just as no one can guarantee whether the S&P will close up or down next month, we cannot AND will not guarantee anything other than our commitment to show up for work WHEN there is something that, in our opinion, is worth trading. We have been at this for a while now, and we have been at trading for quite a bit longer than that. However, the only indicator of whether what we are legitimate in our claims is to observe us in action. 

Take the time to evaluate our approach. When something appears black-boxed or round-about, ask! We are always happy to answer any question. The rest of the answers may be provided by our record and our content. 

We strongly suggest you paper-trade our alerts for the first week or so. This is not only wise as it may avoid undue pressure on your capital in a particular bad stretch (we have them too). It also gives you a practical chance to assess the mechanics and the timeliness of the entire process, as well as your own versatility with this. We do not advocate trial by fire when it comes with real money, although you are certainly free to take the risk. 

Finally, feel free to ask any of the other members of the product. We advocate members to communicate with one another as only like this we can hope to have as vibrant a community as we know we can become. There is no money in the world that buys a good word from our members-- except the money that a member makes following our alerts. If you talk to a member who is still around, chances are he or she is either new like you, or has been around for a while and glad to stick with us. Ask what they think of our service. 

By design, our stocks are selected based on the belief that they are about to post significant moves in relation to their typical daily range and volatility. Often, our targets (or losses) materialize within a single session. However, there is a not insignificant portion of time when positions need to be maintained for a week or more in order to hit one of our predetermined outcomes. While you can certainly close positions at the end of each session, your returns may no longer correlate with ours. 

See: “How are TTR Trades Managed?”

Past results do not indicate future performance. That said, our history has given us some baseline data.

About 10 percent of trades result in a loss, Stop 1 of -5 percent. About 75 percent of trades result in a Target 1 of 2.5% followed by a Stop 2 at entry, making for a return of 1.25 percent. About 15 percent of trades result in a Target 2, typically around 5%. Performing a weighted average of these scenarios yields a typical 1 percent trade return, on average. 

Again, you must remember: Past results are not indications of future performance. 

Our trades are selected with the purpose of achieving a two to five percent return within our holding period, which in turn may last as little as minutes or as long as a week or two. Our trades are initiated with pre-determined stop loss and target levels, as well as a time expiration which varies on a case by case basis. 

Our Stop 1, commonly abbreviated to S1, is typically no more than a negative 5%. Given that our trades are roughly 15 to 25 percent of our portfolio value, this means that total loss on a single trade should not exceed 1.3 percent. Stop 1 is hit when the price of the stock falls before making it to one of our targets. Our empirical data suggests that this happens less than 10 percent of the time. 

Our Target 1 (T1) is usually 2.5 percent. Once this target level is hit, our stop loss moves to Stop 2 (S2), which is at break-even (entry). By design, T1 and S2 are adjacent to each other in our trade management process, and our empirical data suggests that S2 (rather than T2) will follow T1 roughly 75 percent of all trades. 

As you may calculate yourself by now, the remaining 15% of trades, based on our historical data, end up hitting our Target 2 (T2) level of 5 percent. 

As appropriate, notice may be sent out ahead of stock hitting any of these levels. 

We size our trade lots based on TTR's assigned portfolio size and we do not use leverage. We size our trades to be between 15 and 25 percent of our portfolio value, which is a highly concentrated portfolio allocation that may not be suitable for your own portfolio. Only you will be able to determine how much capital you should allocate to our trade alerts. Based on that amount, we advise you size each trade to be no more than a quarter of it, so you can participate in as many trades as we do without getting overextended or violating your allocation. 

While TTR is not as risky as some strategies out there, you should always assume that our trades are highly speculative. As such, it is important to allocate them only risk capital, which means money you can afford to lose. Whether this capital is in your taxable or IRA account, it is up to you. That said, remember that a sizable portion of our trades are Shorts. IRA accounts will not allow negative share lots (short positions). This means that, while you will be able to execute most of our trades (which are long), you won't be able to participate on our Short ones, which means your results may diverge from ours. 

Our recommendations are of a short-term nature. As such, how our individual picks fit with the rest of your longer-term holdings is not too material. It helps to think of TTR trades as an asset class that should have its own allocation within your portfolio rather than the combination of its stock picks. What this means is that based on how you feel about TTR and its risk/return relationship should dictate how much of your capital you should dedicate to it. 

Our process is divided in three blocks.

Research

Our daily regimen starts with individual stock selection notes, which are analyst research-style writeups on one to three stocks we intend to consider trading for the day. We like to keep the number of these notes, as well as stocks that are candidates for trading, to a manageable number; after all, there are only so many hours of preparation available in the pre-market. 

Each notes is prepared in a dynamic and easily absorbed format. On the right side of the note are quantitative stock vitals such as volume, price levels, volatility and charts, as well as trade parameters such as stop loss and targets. On the left side, there are three text boxes: a summary of the idea, a detailed context, and a trade plan.

Alerts

Our actual real-time alerts go out some time after our research notes have bee delivered and when the stock(s) have reached opportune levels for entry. There is an inherent lag between the price you see on the alert and the one on your trading platform. It is the nature of internet, and we cannot do anyting about it. However, by the time the alert has reached you, you will have been familiar not only with the stock it concerns, but also a detailed discussion of why we are trading it, thanks to our advance research we detailed above. While this is entirely up to you, sometimes our actual alerts can be a perfunctory step; there is enough information on the research notes to carry out entry as well as exit of trades.

In-Trade Updates

Following our entry, we will continue to deliver updates concerning the trade. Such updates include stop loss and target levels now firmed up based on entry price. They may also include trade management adjustments based on real-time developments that affect the trade, such as a premature exit, or an extension of the preset trade duration. Regardless of whether you are an active trade manager or a casual, execution-only person who'd rather do other stuff in between, chances are you will find these updates useful, as they may include information you do not have to spend time monitoring. 

We use sell-side analyst ratings to identify high probability moves. We may go along with OR against a notable analyst call based on the quality of their arguments as well as the timeliness of their call. Our typical trade duration is between two to three sessions; our trades are as short as one minute or as long as a week or two. 

We typically encounter two types of trades: (1) volatility moves ( pre-market, session open) or (2) strategic swings (one to two weeks, into company events such as earnings, analyst days, etc).

Volatility moves are those stocks that have been subject to a re-rating (upgrade, downgrade, or an initiation) from sell-side analysts. Such stocks move for a variety of reasons, including the rating itself or an event that induces re-ratings across several sell-side firms. These moves present themselves either well ahead of open or immediately following it. Regardless of whether it is one sell-sider or more, some ratings tend to correlate with a corresponding move (upgrade-Long, downgrade-Short, etc) 80+ percent of the time.

Strategic swings are those stocks pointed out by sell-side ratings, but that lay at inflection points in their “lives”. These include key technical level (52-week high or low, top or bottom), key upcoming catalysts (earnings, regulatory, analyst days) or special situations (short sellers, overbought, oversold, etc).

We will not blindly follow the direction of an upgrade, downgrade or an initiation. Rather, we seek to identify what is driving these new ratings. Where possible, we will seek to read between the lines and possibly eke out a trade that does not align with the rating itself.

We love ratings that are based on hard facts or data such as proprietary surveys, management talks or other insights. When these are not available, we like soft assumptions that provide an original line of thinking, or at least a line of thought that is gaining new momentum across the sell-side or the market in general.

Not all sell-siders are created the same. Goldman Sachs won’t need too much hard data to move a stock in its intended direction. A smaller sell-side firm will need a lot more “credibility” to its arguments in order to make it to our watch list.

We appreciate context in our ratings. If a stock is upgraded to Buy when until today the predominant rating has been between a Hold and a Sell will get our attention more than a Buy that comes amid a predominantly Buy sentiment across the sell side. We won’t chase the trade unless momentum and sentiment makes it irresistible for us to do so. Even then, we oblige grudgingly.

We will try wherever possible to anticipate which stock will be re-rated, which a lofty, if easier said than done. Often the easiest way to do this a re-rating. Another Sell on a predominantly Sell-rated stock begs the question when the next Hold or Buy rating is coming back. If some context is available to surmise a possible reversal, that is all the better towards “anticipating” a re-rating.

Bottom line is the way one can use ratings to trade profitably are too many to mention. Rest assured that TTR makes it its mission to sift through them. We are data fiends and observation maniacs. Something is bound to pop.