Trading Rules for Shares Updated

I’ve revised my trading rules for shares to include changes in practice I’ve made over the past few weeks. These rules, as well as those for options, are available from the Trading Rules tab at the top of any page.

Mid-Risk: Share Trades

This strategy relies on a rule-based evaluation for the selection of stocks and on a 20% trailing stop/loss for the exit signal.

I divide my holdings and trading decisions into portfolios, depending upon the method used to evaluate potential additions.

My portfolios are divided into two sorts.

Strategy portfolios use a search of a category of stocks for a symbol that meets certain criteria corresponding with a strategy. I have three strategies that I use:

  • Growth, which relies on ratings changes given my market analysts.
  • Momentum, which relies on the rate of change over several lengths of time.
  • Value, which relies on the financial performance of the company compared to the price of its stock.

A second sort of portfolio, a watchlist portfolio, takes a relatively small list of stocks and trades those that meet general criteria according to one system or another.

For example, my Genetics Portfolio was constructed based on the ARKG exchange-traded funds holdings.

Depending upon the rules, all of this can be done by the trader without relying on the analysis of others. For convenience, I’ve chosen to rely on the analysis aggregator Zacks  to provide the ratings of stocks that I use in making decisions.

Zacks uses analyst ratings on their primary method, using earnings forecasts to select from their already screened pool. Their method boils everything down to a numerical rank: 1 for strong buy, 2 for buy, 3 for neutral, 4 for sell and 5 for strong sell. The rating is relative: The top 5% of their stock pool gets a 1 ranks, as does the bottom 5%. The 2 and 4 ranks each get 15% of the pool, and the 3 rank gets the remaining 60%. So the ranks aren’t objectively good or bad, but only in relation to the rest of the approximately 10,000 stocks the company tracks.

For my strategy portfolios, I require that stocks have a Zacks rank of 1 for entry, and I exit that day if it drops away from the strong buy level. For my watchlist portfolios, I’ll requires a Zacks 1 or 2 rank for entry, with exit rules if that changes to a neutral or sell rank.

Trading Rules


  1. When the Zacks criteria are met.
    1. Strategy portfolios, which are the results of queries into the Zacks database: When the stock appears on the screening, meaning it matches all of my search criteria.
    2. Watchlist portfolios, which are lists of stocks: When a stock on the watchlist has a Zacks rank of 1 or 2.
    3. Income portfolios: When the fund has a Zacks rank of 1, 2 or 3.


  1. Set a trailing stop/loss for each position of 20%.
  2. A position that fails to qualify for its portfolio is benched if
    1. the Zacks rank is 1 or 2 (strong buy or buy).
    2. the rank is 3 (hold) and, in the case of a Value, Growth or Momentum portfolio, the corresponding strategy score is A, B or C. (the scale runs from A — best — down to F — worst).
    3. the rank is 3 and, in the case of a watchlist portfolio, such as Genetics or Robotics, the corresponding strategy score for Momentum  and Growth is A, B or C.
  3. Otherwise, the Portfolio is exited.

Note that the 20% trailing stop rule was based on three research papers:

Han, Yufeng and Zhou, Guofu and Zhu, Yingzi, Taming Momentum Crashes: A Simple Stop-Loss Strategy (September 24, 2016). Available at SSRN: or

Yusupov, Garib and Shorrason, Bergsveinn, Performance of Stop-Loss Rules vs. Buy-and-Hold Strategy (2009). Available at Lund University:

Kaminski, Kathryn and Lo, Andrew W., When Do Stop-Loss Rules Stop Losses? (January 3, 2007). EFA 2007 Ljubljana Meetings Paper. Available at SSRN: or

The Zacks rank method presents trades almost every day, as stocks fail to qualify and new stocks qualify to take their place. A no-commission brokerage, which includes the pioneering Robinhood and the major brokerages such as E-Trade and TD Ameritrade that have followed in Robinhood’s footsteps, makes such rapid trading possible. A brokerage that charges commissions would require a different approach.

Zacks makes its ranks for individual stocks freely available, and that is sufficient for managing a small watchlist portfolio.

For example, in creating my Genetics Portfolio, I took the holdings of the ARKG exchange-traded fund — 37 stocks — and within Zacks created a portfolio containing those symbols. The portfolio includes up-to-date rankings for each symbol. Just by pulling up the portfolio and sorting on rank, I can instantly see what the tradable stocks are and compare it with what I already hold. At this writing I hold all nine qualifying stocks.

For my strategy portfolios, which scans the entirely of the massive Zacks stock pool, it’s necessary that I be able to run queries against their databased, and for that I need a premium account, costing an annual subscription of $249. Traders with small accounts will do better by using the watchlist method, thereby avoiding the overhead.

The subscription works out to $20.75 a month, and I’ve entered about 30 positions in the current month, so divide by 60 — once for entry and again for exit — and it works out to a 35 cent premium per trade. Not such a bad deal, considering that in the bad old days of last spring, the commissions would have been at least $13 total for each position.

By Tim Bovee, Portland, Oregon, February 4, 2020


Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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