Welcome to the Small & Mid-Cap Earnings Growth Trading System
This page is the best place to begin. Here you’ll find:
- A brief overview of what this trading system is all about
- Precise instructions on how to trade the model
- And more!
Introduction to the Small & Mid-Cap Earnings Growth Trading System
The Small & Mid-Cap Earnings Growth system uses trading signals generated by a quantitative strategy that MarketGauge developed that combines the concept of trend strength and ranking. The model begins by applying certain fundamental and size filters on the Russell 2000 index companies (an index composed of smaller U.S. companies). We then rank the remaining symbols based on their Trend Strength Indicator (TSI) score.
After the close of the last trading day of each month, the stocks are ranked by TSI and we determine which stocks should be in the portfolio for the next month. If a current holding is still in the top 10 ranking, we will continue to hold it or re-enter the stock if we were stopped out in the prior month. Any stocks from the prior month that are no longer in the top 10 are replaced with highest ranked stock not currently in the portfolio.
Each position is managed with stops and targets. At the first target, 25% of the original position is sold. At the 2nd and third targets, another 25% is sold respectively. Once the stock has made a significant move from the 3rd target, we will implement a 4th trailing target for half the remaining (12.5% of the original position). The remaining position will remain on unless it hits a stop or the model rotates out of the stock. At each target, the stop is ratcheted up. If a stop is hit, all of the remaining position is sold and that portfolio spot will remain in cash for the rest of the month.
Quick Start: Starting A Portfolio
You can start at any time. The actual model only enters new trades on the first day of the month based on signals generated on the last trading day of the prior month. We never know how long a trade will last or how far it will go.
The best way to start following the model is to use the calculator and instructions found on the “Tools” page. The calculator will show you the real-time percentage allocation of the model portfolio. You can use this to create your own portfolio that mirrors the model portfolio.
The website page “Model Portfolio” will show you the current five positions and their stops and next targets. We also provide the Position Calculator on the “Model Portfolio” page – however we recommend that you familiarize yourself with how to use it by reading the instructions on the “Tools” page.
When you initially put on the position, you can enter hard stops at the initial stop loss. You can also place orders to exit the appropriate amount at the first target (25% of position). We are implementing a target protection protocol. If the stock gets within 1% of a target (“Target Trigger” price in open positions), we will then exit the profit target shares as soon as one of these events are triggered:
- The original target is hit
- The 3% trail price is hit
- If either price is not hit, we will exit at the end of day (exit at any price in the last 5-10 minutes of trading)
Small caps stocks can be significantly more volatile and active than large cap stocks and its not that unusual to hit multiple targets or a stop in the same day. Any position stopped out will remain in cash until the following month.
Each portfolio spot is treated seperately. New positions use the available capital from that portfolio spot. A portfolio spot may start at 20% of the portfolio but will grow or shrink with each new position until all the portfolio spots are all rebalanced twice annually (end of June and end of December).
You can see the percentage of the whole portfolio spot in the “Real-Time Portfolio Allocation and Setup”
Maintaining A Portfolio
Shortly after the close of every trading day, the website will be updated with the most recent trade data (closing price, return, etc…). Anytime a trading event occurs, you can expect an email or text alert updating the change. On the final trading day of each month, the model will calculate and issue any position changes if necessary. There might be months where all five of our positions could change and, likewise, there could be months where none of our five positions change.
Trading Alerts & Position Updates
There are two types of potential updates. On the final trading day of each month the model will evaluate the Russell 2000 index and determine if there are any necessary position changes. This can include rotating out of one position into a new one or re-entering a position that was stopped out in the prior month. You will be notified of these changes in a special monthly email that goes out on the last day of each month.
The other type of update occurs when one of our positions either reaches a target or gets stopped out during the month. When this happens a special notification email and text will be sent out. The prices are published ahead of time. Note that each target has a trigger price that will turn on the protective stop for that target and we will exit the profit target if it hits the original price, hits the protective stop, or closes the trading day between the two.
For both of these types of updates, the actual update can be found on the “Position Updates” page. Navigation to this page is found in the right-side navigation panel.
Be aware that small cap stocks can have high levels of volatility and some stocks may hit multiple targets or stops the same day.
Weekly Model Updates and Position Summary Email
Every weekend, we will send out an email that will summarize the model and market action for the week. We will also include a position summary for each of our five positions.
Managing Your Text Alerts
If you would like text alerts in addition to email alerts, simply go to the “Manage Mobile Alerts” link in the top navigation panel on this page and register your phone number.
Monitoring the Strategy Portfolio
You can easily see any recent trade alerts in the “Position Updates” section of the website. This page is updated anytime a trade alert is issued.
The “Model Portfolio” area of the website tracks the current open positions, position calculator, recently closed positions, and historical performance metrics. The data in this section is updated after the close of the market each day.
We have a position calculator found in the “Model Portfolio” page and “Tools” page. This shows you the percentage of the total portfolio for each position and position slot. You can use this tool to figure out how many shares to buy to start a portfolio mid-month or rotate into new positions. Instructions on how to use the position calculator can be found on the “Tools” page.
We will also have monthly webinars where we will discuss our current holdings or new positions and answer any questions that our members might raise.