Earnings estimate revisions are the most powerful force impacting short term stock prices. The Zacks ranking system identifies stocks with rising earnings estimates. This tool demonstrates how trading breakouts of Zacks #1 ranked stocks can deliver outstanding performance in good and bad markets.
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Trading Strategy - Long Positions
Our trading strategy is purely mechanical and extremely simple. As a result it is easy to implement for the private investor. The strategy's strengths are:
- only two buy rules and three sell rules.
- parameter values are robust and constant over all time frames and market conditions
- the choice of number of simultaneous positions open is at your discretion
- the strategy uses risk control levels that you determine depending on your risk tolerance
- the money management rule is powerful but extremely simple
- For subscribers able to act on email alerts: buy as soon as you receive the alert
- For others: buy at next session's open. (Note: After an alert, these stocks move up quickly and buying at the open can mean paying a significant premium over the alert price with a consequent loss of profits. The premium paid is shown in the simulation results).
- Sell at next open if it is no longer ranked #1 on Zacks rank.
- Sell at following day's open if it closes below a stop loss level of your choice at any time after breakout and before losing the Zacks #1 ranking.
- Optional: sell at next open if breakout alert not confirmed.
- Stop Loss level as a % of breakout price. For example 7% would limit loss to 7% of initial position value.
- Buy Limit as % of breakout price to minimize premium paid over breakout price
- Buy Stop as % of breakout price to allow buying if open is below breakout price.
- Number of positions - maximum number of positions to hold at any one time.
- Minimum volume of your choice.
- Minimum RS Rank of your choice.
- On buy, invest 1/n th value of available cash where n is the number of open positions. For example, if your maximum positions is 5 and you hold three stocks in your portfolio, on the next breakout you would invest 1/2 of your available cash as you have two positions open.
- On sell, add proceeds to your available cash. This allows compounding of your gains as your position size will grow as your portfolio grows. On a loss, your next investment will be smaller thereby conserving your capital.
This simulation allows you to test various parameter values. You can see the trades that would be made and the daily portfolio value by clicking the 'View Transaction Data' button which you can then copy and paste into a spreadsheet. We suggest using the default values first.
Note: only stocks with a minimum price of $6, minimum avg. volume of 30,000 and RS Rank >= 80 are considered.
The simulation considers stocks ranked #1 as of Monday morning and looks for breakouts in the subsequent 5 days. While a #1 ranked stock will be bought on breakout, a stock losing its its #1 rank is not sold until the Monday following the week in which it lost its rank. This potentially reduces the simulated gain or increases the simulated loss. The simulation uses realistic buy and sell prices, but does not account for slippage, commissions, taxes, etc.