The Health Indicator uses our proprietary measure of volatility — the Volatility Quotient (VQ) – and several powerful algorithms to help you quickly and easily determine the health of stocks or funds. It uses three color-coded health states: Green, Yellow, and Red.

The Health Indicator Green State is the strongest and “healthiest” state. It indicates an investment has risen significantly off a major bottom, is performing well, and is experiencing only minor corrections.

The Health Indicator Yellow State indicates an investment has sustained a significant correction but is still moving within the boundaries of its expected volatility. It hasn’t yet been stopped out, but is getting close to an “unhealthy” state. It’s telling you to be cautious, just like a yellow traffic light.

Finally, the Health Indicator Red State indicates an investment has corrected more than it should have based on its expected volatility. It’s no longer “healthy.”

But these three states aren’t just useful for determining the health of an investment. They’re also the basis for our primary TradeSmith entry and exit signals.

Our standard Health Indicator Entry Signal is triggered when an investment moves from the Red State into the Green State. (Conversely, an “exit signal” — what we call a Health Indicator Stop Loss — is triggered when an investment moves from the Green or Yellow States into the Red State.)