I’ve been playing around with a beta version of SmartStops. SmartStops helps all those traders who know they should use trading stops but either out of negliglence or sloppiness don’t.
According to the website: SmartStops are unbiased sell triggers calculated each day based on current market conditions, historic trends and the optimal exit methodology.
The system emails you before each trading day to notify you of both a short term and long term stop price on stocks held in your portfolio. The system also uses a quick email to alert you when one of your starts breaches the stop price. Pretty good for ADD-type traders.
I think it really gets interesting when SmartStops introduces its BrokerLink — a program that “Subscribers will soon be able to automatically synchronize their SmartStops portfolios with accounts they hold with participating brokers”. If you believe in the SmartStops methodology (more on that below), this is of tremendous value for traders.
So, what about the SmartStops methodology?
Well, I can’t find enough information on the website to really understand the black box behind the system.
To the right is the money shot — a comparison of SmartStops methodology versus just buying and holding stocks and using differing trailing stops. It looks very good but there just isn’t enough on the site to get comfortable with in terms of methodology. How does the system interpret current market conditions, historic trends and optimal exit methodology.
I understand that this is SmartStops’s secret sauce but I’m not sure traders can just rely on one particular chart supplied by the firm itself. I’d be interested in learning more but it looks like it could be a promising service for those investors who use stops as part of their trading processes.
Check out Barron’s review of the system as well (sub. required).
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After this post appeared, Chuck LeBeau, Director of Analytics for SmartStops wrote a comment on the original post (see below) which he has allowed us to reprint here:
Thank you for looking at our service. Our analytics are based on years of experience of our Director , Chuck LeBeau. What is quite unique about our approach is that we have deployed a multiple-switching exit strategy based on numerous conditions in order to determine the optimal exit point for the following day’s market.
As you have noted, we cannot disclose our trade secret but we can tell you the following:
With our SmartStops methodology stops or exits will adjust up and down and tighten or widen based upon daily sophisticated analytics of market and stock behavior. With the normal fluctuation of stocks moving up and down over various periods of time, our SmartStops are carefully designed to be triggered only by abnormal weakness during these periods. We automatically adjust the exits each day to keep the exits outside of normal back and forth price action. When the volatility of the daily price changes increases our definition of “normal” also increases. This is when the exits are moved further away to prevent them from being triggered by any negative price action that is merely random.
To sum things up: when the volatility is decreasing the exits will move closer and when volatility is increasing the exits will move further away. This is one of the many features that make SmartStops unique and we hope that once you have watched them adjust back and forth you will gain confidence in the logic behind these adjustments. We want to let profits run and we want to avoid “whipsaws” that are caused by getting out on insignificant declines. In general when prices are rising our exits will be farther away than when the prices are declining.
We hope that helps in answering how SmartStops methodology works, but do feel free to contact us anytime at support@smartstops.net.
Best regards,
Chuck LeBeau
Director of Analytics
