The Stock-O-Matic System
How do I choose which stocks to buy?
If you are not committing a lot of capital to our system, our suggestion would be to focus on a small number of stocks that you commit to buying regularly when buy signals are generated. We've found that spreading your capital too thin amongst many stocks typically hurts your return due to the cumulative effect of commission charges relative to your gains. Consider having more stocks if you are working with more capital; Smartlists portfolios are a great way to organize your favorite stocks, and to see detailed walk-forward analysis for the whole portfolio on your dashboard.
Better yet, let us do the choosing for you! The first few Smartlists in your account have been generated by us. They are the optimal portfolio of stocks from Stock-O-Matic, and have the best Sharpe Ratio. In other words, they have the highest risk-adjusted return, i.e. the maximum return with minimum volatility.
In our experience, picking and choosing individual trades runs the risk of missing out on unexpected big gains (which happens a surprising amount of time).
Which stocks you choose depends on your goals. If you are looking for strong growth with perhaps more risk you might choose stocks with strong performance. If you are more risk adverse you might choose stocks with lower drawdown and/or higher win/loss percentages. You can use the All Stocks page to sort based on performance, drawdown, and/or winning percentages. Keep an eye on the average number of days you hold a stock, too.
What are the Optimal Smartlist Portfolios on my dashboard?
The first few Smartlists in your account have been generated by us. We've run through the millions of combinations of groups of stocks to find the optimal portfolio, i.e. the one with the best Sharpe Ratio. This means the portfolio has the highest risk-adjusted return, or the maximum return with minimum volatility. Another way to think of it is that it has the highest return per unit of risk. We provide optimal portfolios of different sizes to allow for flexibility.
These optimal portfolios are not editable by you, and are updated at the beginning of each calendar year. If you wish to save the current optimal portfolio before it is updated, you'll need to create a new Smartlist portfolio containing the same stocks from the All Stocks page.
How can I outperform the market with just 15 minutes a day?
Stock-O-Matic does all the thinking for you. All its decisions are based on statistical numbers. No more second guessing. No more emotional trading. Just cold, hard statistics. At 3:45pm every day, 15 minutes before the close, you get ready to execute the trades that exceed certain price levels. That's it! No more guesswork. Spend less time in front of the screen, while still making more money.
How does Stock-O-Matic determine buying and selling signals?
Stock-O-Matic is based on a proprietary trading algorithm. The algorithm is based on technical analysis and price action of equities based on a 5-year time horizon and is optimized, using every permutation and combination of technical oscillators, moving averages and stop order % adjustments. The parameters are varied and tuned such that profit is maximized, and drawdown of your portfolio is minimized, providing a relatively smooth performance when compared to the volalitility of other trading methods. The key to Stock-O-Matic is in the tuning of parameters for each individual stock, rather than applying a generic algorithm to everything.
Why don't I just backtest, optimize, and screen stocks myself using another investing research website?
It's true, there are many investing websites out there that provide the ability to backtest strategies and provide screening ability to give you trade signals. Stock-O-Matic is different because:
1. With other websites, you are responsible for choosing and fine-tuning the technical indicators you use. No matter how many variations you try, doing so manually is no comparison to having a computer try all the permutations automatically and choosing the best, which is what the Stock-O-Matic system does.
2. We re-optimize regularly. Having one blanket strategy that you expect to work on a stock for all time is not realistic. Stocks change their characteristics and sensitivity to certain indicators over time. Regular re-optimization and placing more weighting and importance to more recent performance ensures our signals are always finely-tuned.
As an example of this, HAL behaved very differently from July 2011 - July 2012 as compared to July 2012 - July 2013. Whatever strategy you were using from July 2011 - July 2012 would likely not have worked in the following year.
For more details on our trading algorithm, see here.
What is Stock-O-Matic's performance record?
Stock-O-Matic makes available all the suggested trades in the last 5 years. For each of the stocks provided, you can pull up a performance chart which shows Stock-O-Matic's performance and displays markers on dates where re-optimizations occurred for the stock. You will find that Stock-O-Matic returns are much more linear and stable, without the deep ups and downs that you experience when holding a stock for long periods of time.
Furthermore, you can group stocks into Smartlist portfolios and see detailed walk-forward analysis for the entire group at once. You can also fine-tune the parameters, such as the amount of capital used, commissions, whether compounding is applied, and even the margin requirement. With a well-chosen portfolio of stocks, you'll see that the walk-forward analysis handily beats the market.
How is walk-forward analysis different from backtesting?
Traditional backtesting services find a fixed set of indicators for some time period in the past, and then presents the computed optimal performance as if it represents actual attainable results. Using these static indicators in the future is very unlikely to provide similar performance to the optimal performance, since that was computed with foreknowledge of how the stock price would behave.
Stock-O-Matic instead does the following:
- Rewinds the clock to 5 years ago, and calculates the optimal set of technical indicators for the 5 years prior to that point (i.e., 10 years before today).
- These indicators are then used to generate buy and sell signals for the next quarter. These are generated without knowing how the stock price will behave during this time period. Thus, they represent signals that would actually have been generated.
- At the end of this quarter a new set of optimal technical indicators are computed for the previous 5 years.
The above process is repeated for each quarter of the past 5 years. The results shown for the walk-forward analysis represent actual buy and sell signals that would have been generated, and not just optimal, but purely theoretical results.
See here for more detail.
Do Stock-O-Matic's performance results include compounding of profit?
No, not necessarily. When viewing the performance details for a symbol or for a portfolio of stocks, you can choose to base the presented values on spending the same fixed amount on the share purchase for each trade, or with compounding on. The fixed amount (or initial capital used in the case of compounding on) can be set via the given input box.
If you would like to have the profit compounded, click on the "Compound Profit" checkbox on the performance details page for a specific symbol, or on the main dashboard when viewing the Smartlist walk-forward analysis.
Does Stock-O-Matic adapt its optimization with changing market conditions?
Yes. Stock-O-Matic optimizations for each and every stock on our list are re-optimized on a periodic basis, usually every quarter. Stock-O-Matic analyzes the last 5 years of data and puts more weighting and importance to the more recent years. This is in recognition of the changing nature of the market.
For more details on our trading algorithm, see here.
Can Stock-O-Matic optimize buys and sells on any stock?
Stock-O-Matic works on many stocks. Some stocks have characteristics that are more amenable to the Stock-O-Matic algorithms than others. We are constantly searching for new stocks to add to the system.
Isn't buy-and-hold easier?
Yes, definitely, but you will see in our performance charts that for many stocks, Stock-O-Matic smooths out all the volatility in your return and in most cases greatly enhances your return on capital.
Also, since Stock-O-Matic generally only suggest 2-3 trades for a given stock per month, and you hold the stock for an average of 3-5 days, your exposure is much less. Since you aren't holding any stock for very long periods of time, it's less likely that a bad news report on the stock will happen while you own it.
Can Stock-O-Matic trade for me?
No. Stock-O-Matic helps you make trading decisions, but we are not currently providing a way to completely automate trades. There are platforms however, that allow you to preconfigure buy and sell signals provided by Stock-O-Matic available at some brokerage houses.
If your trading platform provides advanced orders such as OCO (One Cancels Others) and Conditional Orders, you can automate to some extent.
For example, to place a buy order for the stock WNR that is "On Deck" with target price of $32.06: place a Conditional Order to buy WNR if price is at or above $32.06, submit at 15:59:30. It might look like the following:
BUY +500 WNR MKT SUBMIT AT 5/22/14 15:59:30 WHEN WNR MARK AT OR ABOVE 32.06
For example, to place sell orders for the stock VHC that is "In Play" with stop price of $21.49 and exit price of $22.65: place a pair of orders in an OCO group. Order 1 will be a market stop order for $21.49, and order 2 will be a Conditional Order to sell VHC if price is below $22.65, submit at 15:59:30. The pair of orders generated might look like:
SELL -500 VHC MKT OCO SUBMIT AT 5/22/14 15:59:30 WHEN VHC MARK BELOW 22.65
SELL -500 VHC STP 21.49 OCO
If you don't have access to advanced orders, don't worry! You can still place your stops during the day, and make your buy and sell decisions in the last few minutes of the market using the Dashboard as a guide.
Does Stock-O-Matic do backtesting?
When you use backtesting software, you need to manually adjust parameters (such as moving average durations as a simple example.) Stock-O-Matic uses backtesting techniques for the last 5 years to optimize its trading algorithm. By automatically exploring all the permutations and combinations of the parameters of various technical analysis formulas, Stock-O-Matic attempts to maximize profit, while minimizing losses. (This is very difficult to do manually).
Stock-O-Matic also regularly re-optimizes stocks, and the trades shown are computed using walk-forward analysis.
For more details on our trading algorithm, see here.
Did the trades shown on the performance page actually happen?
No. As with any trading strategy, the past performance represents simulated trades. Of course, there's no guarantee that past performance will imply the same performance in the future. We are confident, however, that with our policy of regular re-optimization the performance will continue to be strong even as the characteristics of the stock price change.
Having said that, the presented trades are computed using walk-forward analysis, which makes them as accurate as possible; far more accurate then a typical backtesting system. Read more about walk-forward analysis vs. backtesting.
Make sure you read the Disclaimer carefully to make sure you understand the risks associated with online stock trading.
Can I use Stock-O-Matic for trades during the day? (Intraday)
No. All buying and selling decisions are made just before the market closes. Stock-O-Matic optimizes stocks based on end of day data.The whole point of Stock-O-Matic is to maximize your profit while freeing your day up so that you don't stay glued to the screen (which also is emotionally draining).
What's the difference between free users (anonymous & registered) and paid users?
Anonymous free users have access to buy and sell signals for a small number of stocks on their dashboard.
Registered free users have access to the same stocks on their dashboard, but can also see detailed walk-forward analysis for the entire group of free stocks. They can also create their own Smartlist portfolios and see detailed walk-forward analysis for these portfolios (although they cannot get current buy and sell signals for them). They are also able to set default values for capital, commission, compounding, total capital, and margin requirement.
Paid users have all the above, plus access to buy and sell signals for all stocks available in the system on their dashboard. They also have the ability to have daily email alerts sent to them, and can set a default Smartlist portfolio for their dashboard. Finally, they do not see advertisements on any pages.
For more details on the differences between users, see the subscription page.
Using the Stock-O-Matic website
How do I use Stock-O-Matic?
Stock-O-Matic gives you buy and sell signals on the Dashboard based on end of day closing prices. 15 minutes before the end of each trading day, go to Stock-O-Matic and look at the http://www.stock-o-matic.com/home page. All the stocks in the "Buy Signals" section are buys if they close greater than or equal to the prices indicated. In the last few seconds of the trading day, execute your trades. The next morning the stock that you bought will be in the "Current Holdings" column of the dashboard page. The "Current Holdings" column also tells you where to place your market on stop order. If there is an exit price, then you should sell the stock if the stock price closes below the exit price indicated at the end of the day. That's it! Just 15 minutes and you'll be on your way to outperforming the market, based on Stock-O-Matic algorithmic optimizations.
More detailed help below:
Help! I'm new to stock trading!
Don't worry, we can help. Read as much as you can from the material we've collected here.
Why is there a stop price and an exit price?
Stock-O-Matic almost always suggests a market on stop order in each of its trades. This is usually 3% to 5% of the price of a stock. In many cases, a stock will also have an exit price during certain days to maximize profit or minimize losses. The stop order price is actually optimized for each stock to preserve your capital while giving your stock enough leeway to advance. For the exit price: exit your position in the last few minutes of the market if it looks like the stock will close below the given exit price.
Why does it say "No Stop" for some symbols?
This just means the optimal strategy is to not have a stop for this stock. It's not as scary as it sounds! When "No Stop" is the optimal strategy, there will always be an exit price listed. So in the worst case you're only trading the stock without a stop until the end of that day.
How do I set-up a default Smartlist for the dashboard?
Go to My Smartlists. From there you can choose a particular Smartlist portfolio to be the default for your Dashboard. If a Smartlist is chosen, then only the symbols in that portfolio will be shown on your Dashboard by default. The advantage of limiting your Dashboard to a specific Smartlist portfolio is that you will see detailed walk-forward analysis for that Smartlist. If you do not choose a default Smartlist, then all symbols that you have access to will be shown in the dashboard, and you will only see generic performance information for the entire system.
Note that the default Smartlist option is only available to paid users.
How do I set-up the daily Stock-O-Matic email?
Go to My Smartlists. From there you can choose to have a daily email sent to you for individual smartlists, or for all stocks that you are eligible for. The daily email will contain the "On Deck" and "In Play" information for all the stocks you've chosen. You won't even have to visit the website to do your daily trading!
Please note: you may need to check your junk mail folder to see the email. Add the sending email address to your address book to ensure the delivery of future emails to your inbox. Note also that the daily email option is only available to paid users.
Can I change the default values used for capital amount, commissions, compounding, etc.?
Yes. Click on My Account at the top of the page and then click "Edit". From here you can enter defaults for any of the following: default capital per trade, commissions, whether compounding is on/off, total capital available, and margin requirement. These values will be used when viewing the detailed Smartlist walk-forward analysis on the dashboard, and on the detailed performance page for an individual stock symbol. For a description of what these values mean, either hover your mouse over them on the pages they appear on, or see the following:
How do I change my password?
Easy. Click on My Account at the top of the page and then click "Edit". From here you can change your password.
How do I cancel my paid subscription?
We're sorry to see you go! To cancel your existing subscription, please use the following instructions:
- Log into Paypal.
- Click on Details for a Stock-O-Matic transaction.
- Click on My Preapproved payments.
- Select the recurring transaction.
- Click on Cancel.
Please note that there is no refund for unused days left on your subscription.