Ask Mike:
How is an account initialized if I am autotrading?

Question:

Ron from Dana Point, CA, writes:

Mike,

Would you fill me in on the mechanics of how a newly opened auto-traded account generally gets up to speed and duplicates the entire specific portfolio?

Thanks,

Ron

Mike's Response:

Hi Ron,

First of all, you should be able to have your broker execute any strategy that you want with regard to an initial start up. Those decisions are strictly between you and your broker. If your broker indicated that we (TurnerTrends) limit how you can get started with autotrading, they are mistaken.

If you want your broker to put you into all existing positions or just the ones you pick, that should be entirely up to you. We (TurnerTrends) do not instruct the broker on how or what securities a subscriber should or should not be following.

However, there are some practical issues to consider that may help you make a more informed decision...

1. If I were going to autotrade a stock portfolio, and I was not willing to wait for attrition to get me in sync with the portfolio, I would do all of the following:
   
   First, I would review the position from both a fundamental and technical perspective and draw my own conclusion as to whether or not I believe now is the best time to get into the stock or fund.
   
   Second, if the difference between the equity's price and the current stop loss setting is significantly inside the stock's Expected Move (TurnerTrends publishes the Expected Move on each of its holdings), then I would consider that a negative indicator. Any stock that has an Expected Move that is appreciably greater than the delta between the stock's price and its stop loss setting means the likelihood of a stop out in the near term is higher, in our opinion.
   
   Third, I would look at the stock's week ending close chart. If the stock has begun moving downward toward the stop loss line, then I would wait to see if it recovers and regains its upward path before getting into the position.
   
   Fourth, I would look at how long TurnerTrends has been in the position and compare that to the average age of all the holdings in that particular portfolio. If the amount of time we have had the stock in the portfolio is getting near the average age of all positions in the portfolio, I would be a bit more reluctant to enter a new position. Why? Because TurnerTrends may move into an Aggressive Stop Loss strategy to protect our paper profits and may actually stop out of the stock with a nice profit while someone who came into the position more recently would lose money at that same stop out price.
2. If I were going to autotrade a covered call portfolio and did not want to wait for attrition to get me in sync with the portfolio, then I would look at the Portfolio Tool for the portfolio and perform the following analysis:
   
   I would look at the price of the stock and the current call at the strike price of the trade and compare it to the basis price of the existing covered call trade as shown in the Portfolio Tool. If the stock's price and/or the call are appreciably more than 2% or 3% from the original trade, then I would be very reluctant to enter the trade. Our covered call trades fall within very tight parameters for trends and potential return. I would not recommend executing the trade if it has moved away from those original parameters.
3. If you are autotrading, make sure you understand how much of your available cash is actually being considered by your broker for executing trades. As simple as this sounds, what you believe to be the total amount of funds that the broker should be autotrading and the amount they are actually autotrading can be significantly different. There are issues of margins, fixed amounts, net liquidated value, etc. that your broker may offer to you at the time you set up your account.

I hope this explanation helps, Ron. Please let us know if we can be of any further assistance or if I did not adequately answer your questions.

Best regards,

Mike