This model has generated very impressive returns, both from great trade signals and from consistent application of the rules. As with any automatic rules-based system, there will be times when it is easier to follow the signals and times when the signals might not make as much sense. As a general rules of thumb with any trading strategy, we have found that most traders lose their discipline for two main reasons:

#1. They trade positions that have too much risk and this leads to incorrect trading decisions such as taking profits too soon, selling to prevent losses at the wrong time, or being afraid to enter new trades. The best way to overcome this problem is to start slowly.

#2. They don’t understand and believe in the trading rules of the system.

We have intentionally tried to keep the rules fairly simple to follow to help overcome some of these issues. We recommend that you start slowly to develop your trust and belief in the strategy. One day’s or even one month’s performance will not always be representative of the types of return or trading characteristics you can expect.

You do not need to start with real money, and you certainly do not need to start big! Building bigger positions is easy once you are comfortable and knowledgeable about the system. The most important part of getting started is finding the right low risk way for you to begin. The questions and answers below should help you towards that end. The information in the “How to Use The Model” page will also be helpful.

How do I start trading this strategy?

You can start any time.  The “monthly” model only issues new trading signals on the last trading day of every month to be entered on the first trading day of the new month. During the month, there will not be “new” trade signals but there can be trading events like reaching a profit target or being stopped out of a position.

To get started in the middle of a month, we have provided a calculator on the “Tools” page that will give you the real-time allocation of each position in percentage terms. You can use this information to recreate the model portfolio with similar allocations. This will allow you to create  a portfolio that very closely tracks the day-to-day performance of the model portfolio. From this point, you will then need to manage the positions and follow along with any rotations or trades that occur.

You are free to paper trade, “leg” into trades, selectively trade certain symbols or signals, or modify your trading in any way from the rules and methodology employed by the model portfolio.

One of our holdings dropped out of the top five, why are we still in the position?

On the last day of the month, the model evaluates the NASDAQ 100 to find which positions we will remain in and which we might rotated out and into. A new position will always be in the top 5 going into the first day of the month. However, we employ a “fudge-factor” that keeps us in a position even if it falls out of the top five, as long as it stays near the top 5 by a certain margin.

During the month, a stock might climb or fall in ranking, however, once we initiate a position in a stock, we will stay in it until either a stop or target is reached or the model tells us to rotate out of a position at the end of the month.

One of our holdings is reporting earnings soon, should I get out of this position?

Normally we would not recommend holding a stock through earnings. They can be fairly random events that could cause a stock to gap up or down considerably. However, the NASDAQ 100 All Stars system does hold its positions through any earnings events that occur for positions it is holding.  This can work for or against us on any given trade. However, the effect from any single earnings move will be mitigated by the fact that we have five holdings and in our research the overall historical effect on the equity of this strategy by holding through earnings was positive.

You can still choose to get out of a position prior to earnings (and re-enter afterwards), however, the model will continue to track performance based on holding the positions through earnings.

Should I enter existing positions or wait for new entries?

You are free to enter new positions at your own pace or timing, however, we have provided a calculator tool on the “Tools” page that will help you establish a portfolio, whether it is the first day of the month or the middle of the month. The “Tools” page provides the necessary data and instructions for setting up a portfolio that tracks the model portfolio.

How much capital should I use to trade this strategy?

The question of how much capital a trader should allocate to any trade or strategy is going to have a different answer for every trader based on capital available and your own personal trading style and risk profile. Additionally, MarketGauge is not licensed to be able to give that type of specific advice. A good rule of thumb is to start slowly.

Regardless of how you start, you should always limit your capital to an amount that represents a level of risk that you can afford to lose. You can even paper trade the model for several weeks or a month to see how it trades. However, one period may not be representative of the return, risks, or volatility of the model over a longer period of time and in different market conditions.

There is a built-in level of diversification with the model typically holding five positions. However, with any momentum model, diversification by itself doesn’t prevent draw downs as momentum stocks can often have simultaneous and similar responses to market action.

For this reason, it might be helpful to initially consider a position size for the whole model that might relate to an amount you would put in a speculative or momentum stock like TSLA or NFLX.

How much of each position should I buy?

The model typically holds five instruments. New positions are always added at 20% of the total portfolio.  Once a position has been started, its percent of the portfolio can grow or shrink based on its relative performance. On the “Tools” page we provide you with a calculator that shows the real-time allocation in each portfolio slot. You can use this to recreate the model portfolio in your own account. Recreating the portfolio in this manner will allow you to most closely track the model portfolios performance going forward.

In addition, we provide a downloadable trade tracking Excel tool that can assist you with position sizing and tracking your trades.

What happens when my positions are no longer equal-dollar amounts?

New positions are entered with position sizing based on 20% of the total portfolio.  Over time, this will some positions will grow or shrink based on its relative performance. The portfolio is rebalanced on a rotational basis – meaning that the profits or losses from positions are shuffled back into the model by setting / resetting each new position to 20% of the real-time portfolio value.

You may employ similar money management and rebalancing rules or come up with your own variation based on your trading style. The model performance and statistics will reflect the money management rules we have outlined here.

What is the TSI?

This is our proprietorially generated Trend Strength Indicator (TSI). It is one of the key parts of our model and is also used in a similar way for out ETF models (Complete Portfolio, Sector Plus, and Country Plus). We use this indicator to rank and determine which five components of the NASDAQ 100 we should be in at the start of every month. You can view the current standings of the top 25 NASDAQ 100 stocks on the “Model Portfolio” page.

Over the course of the month, their relative positions will change and you can use this list to review and compare rankings and possibly identify other stocks that could be interesting to trade.

How do you buy at the open?

The model rotates in and out of positions by buying and selling the positions on the open on the first day of each month. If you would like to place orders before the market opens and get the “open” price you should an order called “Market on Open.” Each broker or trading platform may have a slightly different name for this type of order so check with your broker if you are not familiar with it.

This order is generally placed before the open and gives you the “open” price. The open price is determined by a process where the pre-market open orders are evaluated by specialists which determine the market clearing price at the open. You may also place market orders immediately after the market opens to enter these orders. Your entry should typically be very close to the one described in the model.