My Biggest Challenge as a TradeSmith User

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By Michael Salvatore, Editor, TradeSmith Daily

In This Digest:

A great problem to have
An incredible way to swing trade
And an even better way to draw income from the markets
Big ideas from Keith’s X feed
Coming soon: the biggest innovation to hit TradeSmith since Predictive Alpha

If I had one “complaint” about my job at TradeSmith…

It’s that I can barely keep up with the breakneck pace of our development team.

I need more than one hand to count the major software tools released our research team has released just this year.

We’ve given you new ways to trade seasonal patterns with Seasonal Edge… quick stock recoveries with the Snapback Strategy… long-term trends with the Melt-Up indicator… AI projections with Predictive Alpha Prime… coiled-spring setups with the Convergence signal… and now options-pricing arbitrage with the T-Line.

And that’s just what we’ve gone out and actively promoted.

There are dozens more new tools, tweaks, and updates constantly going on behind the scenes for our paid subscribers.

As far as complaints go, this is a great problem to have.

Our users always have something new to try. They can see how the software evolves and improves with time.

And we just quietly released a new tool that serves as a perfect example…

Recommended Link

Maryland Maverick Takes On Wall Street: “Their Stranglehold on Wealth is Over”

TradeSmith has unleashed a mathematical monster that should terrify hedge fund managers. This Baltimore-based team’s breakthrough technology reveals each stock’s unique “volatility fingerprint,” helping regular people decide when to buy and sell. Click here to see how.

TradeSmith veterans know all about our Health indicator…

This is how we judge the trend of a stock based on its underlying volatility. The more volatile the stock, the steeper the pullback we expect to bear before it’s time to cut losses.

This volatility also determines a stock’s health status.

Think of it like a stoplight. Green means go – the stock is in good shape. Yellow means caution. And red means stop – or in our case, follow your stop-loss guidance and sell.

But TradeSmith Health is not just a system for selling stocks.

When a stock moves up from an unhealthy Red Zone state and into a healthy Green Zone state, that’s a new entry signal. And these entry signals can be extremely powerful.

Take Tesla (TSLA), for example. That stock had a new entry signal back on Aug. 4. In the two months since, it’s up 44.4%:

Our Health indicator is essential to follow for your long-term stock positions.

It shows if what you hold is in a healthy uptrend – what we all want our stocks to be in.

But we recently built a new indicator, Short-Term Health, that builds on this trending concept…

I hold just a handful of long-term stock positions in my portfolio. And constantly surrounding those positions are shorter-term “swing trades.”

This style of trading looks to hold positions anywhere from a few weeks to a few months. It’s my favorite way to trade. Those disclosures you see at the end of each issue? A lot of those are swing trades.

I seek stocks recovering from oversold conditions, especially volatile stocks… and I exit them after they’ve gone up a lot in a short time. I then bank those profits and add them to my long-term favorites at favorable times.

Our new Short-Term Health indicator is shortened to “ST” in our system. And it may as well stand for “Swing Trading,” because that’s exactly what it’s good for.

It’s a tighter trading system that’s designed to capture these one- to three-month moves… while using the same stoplight system.

And we’ve found it’s extremely effective in our testing.

We ran this indicator on S&P 500 stocks going back 15 years. On average, when a stock is in the short-term Green Zone, the average annualized return is 23.4%.

When the stock is in the Red Zone, on average the stock shows an annualized loss of -2.5%. In the Yellow Zone, the average annualized return is 1.2%.

Translation: you can rely on short-term Green Zone stocks as great swing trades.

In addition, it comes with a new indicator we’ve developed called the Reactive Moving Average. This is a short-term trending indicator that’s also designed for swing trading.

Here’s that same chart of TSLA, zoomed out a bit, with the Reactive Moving Average as the blue dashed line. Then, I’ve also added on the historical Short-Term Health status to the bottom. That’s the green, yellow, and red bar:

As you can see, the Reactive Moving Average captures some really nice swings in Tesla’s stock this year… along with a few quick false signals.

For example, TSLA crossed above the RMA back in late October 2024. It took a quick trip back below it just before the election – but then took off like a rocket. It soared from $240 a share to a peak of $480 in less than two months.

If you sold TSLA when it crossed back below the RMA in January, around $400, you still booked a gain of about 66.7%.

The tool had another good trade in late April. The stock crossed above the RMA on April 22 when TSLA was trading at $234. By early June, when the stock crossed back below, it was around $320 – a 36.7% win.

To be clear, there is some noise around the indicator. There were plenty of quick pops above the line which did not carry through.

In these cases, you would’ve quickly taken small losses on TSLA stock while you awaited a true breakout – like the one in early August that has taken the stock 44.4% higher.

Clearly, those signals are worth the wait even with the noise.

With ST Health, screening for swing trades just got a whole lot easier…

It’s hard for me not to evangelize the TradeSmith Screener.

As I’ve shown you time and again, it helps you combine all of TradeSmith’s excellent strategies to whittle down the market to only the best trades.

Here’s a Screener I put together on Friday. The idea is to back up our Short-Term health indicator with a second signal from our powerful AI stock projection model, Predictive Alpha Prime.

Specifically, it’s looking for:

Liquid small- to mega-cap stocks (above $10 per share, trading 1 million shares per day, and $300 million market cap or above)
That have moved 35% or more in the last year
Are in the Short-Term Health Green Zone
And have a Prime expected move of more than 5% with historical accuracy of more than 80%.

That took the universe of thousands of stocks down to just 51. Here were the top five:

If you wanted a watchlist for stocks set to rip over the coming weeks, I don’t know if you could ask for a better one.

Utility NRG Energy (NRG) stands out to me for having the most recent Short-Term Health entry signal. That also has a Predictive Alpha Prime projection for the stock to rise 9.4% over the next 21 trading days.

Let’s look for a trade there using another recent TradeSmith innovation, the T-Line.

The T-Line takes any stock (or ETF) you’ve got your eye on and maps out which options might be your best bet. In this case, let’s look at some call options on NRG. Call options are the agreement to buy a stock at a certain price by a certain date. When you’re bullish on a stock, trading calls can add significant leverage while still limiting your downside.

Since we know Predictive Alpha Prime is bullish on NRG for the next 21 trading days, we can look at some call options set to expire around the middle of that projection – like Oct. 24 – to see if any are undervalued.

And the $190 strike, for example, is pretty close. The intrinsic value is at $1.16 while the call option is actually trading at $1.25:

It’s rare to see undervalued call options in such a strong, volatile uptrend right now. And that’s just one of five potential trades our Screener found through a combination of Short-Term Health, Predictive Alpha, and the T-Line.

Today could be your last day for quite a while to get access to TradeSmith’s newest options trading breakthrough with the T-Line. Not to mention the broader suite of Options360 tools:

The Trade Builder, which suggests complete options trades for you – based on the T-Line data – on a stock of your choosing.
Trade Builder also notes the Probability of Profit (POP) that TradeSmith calculates on this particular trade and lets you know the volatility you can expect.
Plus, you get weekly and daily Top Trades, including our Constant Cash Flow model portfolio.
To easily track and manage any trades you’ve chosen to take, you get the My Portfolios tool as well.

Signing up before midnight tonight gets you access to all this… at a roughly 85% discount to its full retail value.

Your regular reminder that Keith Kaplan’s X account is a goldmine of free ideas…

Recently, we showed you why Keith’s X account is such a valuable follow.

Keith shares valuable ideas using TradeSmith tools, as well as his own thoughts on certain stocks. He posted one such longer writeup last Tuesday, Sept. 30 – an analysis on semiconductor firm Ambarella (AMBA):

AMBA has been in a strong uptrend for the past six months, with shares up 107%. But even in the short time since this post from Keith, AMBA is up another 4.5%.

I’ll just say once more: if you’re on X, and you’re not following Keith, you’re missing out on a ton of useful trade ideas every single day. It’s completely free to follow, so go right here to do that and join the conversation.

Coming up: a can’t-miss announcement…

How’s 374% a year sound?

Sounds like B.S., you say?

Well, we can’t wait to prove you wrong.

This week, we’re sharing the first details of a new AI-powered trading strategy that’s shown to do just this.

By just holding a rotating portfolio of five stocks over our five-year backtest, this AI strategy produced an average annualized return of 374%.

Some of the best of the best Wall Street hedge funds work tirelessly to post returns of 20% a year.

Bridgewater & Associates, the fund formerly ran by billionaire Ray Dalio, just made headlines for putting up returns of 26.4% so far this year.

This simple system of trading stocks could beat that by 14 times.

And without using any leverage… futures… options… anything fancy at all.

You’re just following simple instructions to trade, based on an algorithm our research team designed and applied to our most powerful AI model.

I can’t wait to tell you more about this new strategy. To be honest, I’m probably saying too much about it right now as it is.

But just keep an eye on your inbox Wednesday at 2 p.m. Eastern. In our TradeSmith Daily that day, you’ll get everything you need for the first look at this groundbreaking new strategy.

My Biggest Challenge as a TradeSmith User