Published: January 8, 2026.

Last Update: July 20, 2026.

Having a sound exit strategy—especially in volatile markets—is not just wise, it’s essential. TradeSmith offers a powerful set of indicators and alerts designed to help you manage risk objectively and consistently.

This guide introduces TradeSmith’s core risk metric, the Volatility Quotient (VQ), and explains how it creates a customized exit strategy for each security based on historical price data.

Why Risk Management Matters

Benjamin Graham, widely regarded as the father of value investing, famously noted that investors are often their own worst enemies.

Human nature leads us to:

• Hold onto losing positions for too long, and
• Exit winning positions too early.

Successful investing requires overcoming these emotional impulses. TradeSmith helps you do that by replacing emotion with data-driven decision-making.

Where to Find VQ in Your Portfolio

You can review the VQ% for all your positions directly within your portfolio.

Accessing Your Portfolio

1. Go to My Portfolios from the top navigation bar.
2. Select the Manage tab.

From the Manage tab, locate your portfolio.
Within the Positions tab, you’ll see a snapshot of each holding, including indicators that reflect both risk and health.

Understanding the Volatility Quotient (VQ)

The Volatility Quotient is the heart of the TradeSmith system.

Using historical price data, TradeSmith determines the normal risk for virtually any asset, including:

• Stocks
• Mutual funds
• ETFs
• Indexes
• Cryptocurrencies

The VQ tells you how much price movement is normal for a security—helping you avoid stops that are either too tight or too loose.

VQ Risk Categories

• Below 15% → Low Risk
• 15% – 30% → Medium Risk
• 30% – 50% → High Risk
• Above 50% → Sky-High Risk

Why One-Size-Fits-All Stops Don’t Work

Many investors rely on a 25% trailing stop, but risk is not uniform across all securities.

Example:

• If a stock typically moves only about 15%, using a 25% trailing stop exposes you to more risk than necessary.
• Conversely, if a stock has a 40% VQ or greater, a 25% stop trailing stop may be too tight—causing you to get whipsawed out of the trade during normal price fluctuations.

The VQ solves this problem by creating customized trailing stops based on each asset’s natural volatility.

VQ Beyond Exits: Position Sizing

The VQ doesn’t just help with exits—it also helps determine how many shares to buy.
By understanding a position’s normal risk, you can size trades more intelligently and maintain consistent risk across your portfolio.

A Dynamic Metric

The VQ is updated weekly, allowing it to adapt as market conditions change.

Note: TradeStops Basic has access to the Volatility Quotient. TradeStops Plus, Premium, and Pro/Elite have access to the Volatility Quotient and the Health Indicator.

Introducing the Health Indicator (Green, Yellow, Red)

TradeSmith takes risk management a step further by combining VQ with momentum, displayed through the Health Indicator:

Health Zones Explained

• Green Zone
  The security is moving well within its VQ range.
  Signal: Buy / Entry
• Yellow Zone
  The price has dropped by roughly half of its VQ.
  Signal: Hold / Caution
• Red Zone
  The price has dropped by more than its VQ.
  Signal: Sell / Exit

The Health Indicator not only helps you know when to exit, but also signals when it may be safe to re-enter a trade with a new Green light.

Managing Red Zone Positions with VQ Trailing Stops

If you don’t want to close these trades, you can assign them a VQ% trailing stop, which uses the VQ as a customized trailing stop. 

How to Add VQ Trailing Stops

1. Sort your portfolio by the Health column to bring all Red Zone positions to the top.
2. Select the Red Zone positions using the checkboxes to the left of each ticker.
3. Click Add Alert.
4. Choose VQ Trailing Stop from the alerts menu.

If the price hits the VQ-based stop:

• You’ll receive an email alert, and
• A push notification (if you use the TradeSmith mobile app).

You then take action directly with your broker to close the trade.

Enabling the Health Indicator Alerts

The Health Indicator is a global system alert that can be enabled across your portfolios.

How to Enable It

1. Click your name in the top-right corner of the site.
2. Select Settings.
3. Choose Alerts from the settings menu.
4. Scroll down to System Alerts.
5. Ensure the Health Indicator is enabled for:
6. • Investment portfolios
   • Watch-only portfolios
   • Newsletters or baskets you want monitored

Short-Term Traders

If you trade positions lasting less than three months, you can also follow the Short-Term Health Indicator, designed specifically for shorter holding periods.

To learn more about TradeSmith’s Health Indicators, click here.

Final Thoughts: Remove Emotion, Improve Results

TradeSmith’s algorithms help remove emotional bias by evaluating data objectively—allowing you to manage risk more effectively and make smarter, more disciplined decisions.

Need Help?

Our Customer Success team is ready to assist:

• Phone: 1-866-385-2076 (toll-free)
• Email: [email protected]

Thank you for your attention!

*Note—The tabs and features you see on your TradeSmith Finance site will vary based on your subscription(s) and subscription level(s).