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									                                                     Trade System Guru


A Review of VectorVest Trading Software
 Contributed by Matt Blackman
Tuesday, 27 March 2007
Last Updated Monday, 23 July 2007




The Fusion Trader’s Secret WeaponA Review of VectorVest Online Stock Trading Software
By Matt Blackman

Traditionally, the gap between fundamental and technical traders/investors has been more gulf than line. Each group
views the other with skepticism more akin to enemy troops rather than members of the same profession.

Technical analysts believe that all they need to know about a stock can be found in its price chart. By the time the market
knows about key fundamentals, they have already been priced into the stock. One only has to look at the approach of a
value or buy-and-hold investor for an example of this, they claim. A value investor buys stocks when the price drops
since the cheaper the price, the greater the value. This approach with stocks like Enron and WorldCom resulted in
colossal losses for those who used it.

Fundamental analysts, on the other hand, charge their technical counterparts with using past data to make future stock
buying and selling decisions. Such an approach, they claim, is tantamount to driving along the freeway relying only on
what you see in the rear-view mirror.

But there is a third group that effectively combines both techniques – the fusion trader. The efficient market
hypothesis postulates that the desires, wishes, fear and greed of all players is immediately priced into a stock, but it
effectively ignores existing and longer-term or non-immediate sentiment. Let me explain. In a bear market, investors
discount good news and react to the bad – in other words good news, bad action (or reaction). In bull markets the
opposite occurs. At such times, stocks remain unrealistically priced for extended periods. As one market guru once
quipped, the market can remain irrational much longer than someone on the wrong side of it can remain solvent. How
efficient is that? If the efficient market hypothesis were true, great traders like T. Boone Pickens, Steve Cohen, Paul
Tudor Jones and Dan Zanger (to name but a few) would not make as much money as they do. Those at the top of their
game win consistently by looking at the market in a different way than the majority. The very best traders are masters of
the technical and fundamental; they utilize statistics, quantitative analysis and rely on a variety of factors from macro-
economic to micro-technical. In short, the fusion traders use whatever works and do not limit themselves to any single
field of market study.
So why are there so few stock charting and analysis programs that do an effective job of handling fundamentals and
technicals together? Most utilize one technique thereby requiring the trader/investor to master a number of programs. But
is this absolutely necessary? Advertised as a program that does an excellent job in addressing the above challenges,
does VectorVest live up to expectation? Manufacturer – VectorVest, Inc., 20472 Chartwell Center Dr. Suite D,
Cornelius, N.C., United States. 28031 Phone – 1-888-658-7638 or 1-705-895-4095 Web Site –
http://www.vectorvest.com Version Tested – VectorVest Online Software Version Release 1.3.8. (Online version
only.) Cost – Subscription based. $645USD/year U.S. version. $545USD/year Canadian version. Both, $745
USD/year.


Recommended System Requirements

A PC-compatible computer.

Windows 98, NT 4.0 (SP6 or          higher), 2000, Millennium or XP.

A minimum 300 MHz processor,           500 MHz. or higher preferable.

A minimum of 64 MB of RAM,           128 MB recommended.

Requires 200 MB of hard disk         space.

Internet Access with 56k        Modem or faster. (DSL/Cable Modem recommended)

Monitor and video card        supporting 800x600 or higher resolution.

Internet Explorer 5.5 (or  higher) or other browser with ActiveX capability.
Machines used in testing – 1) Desktop - MS Windows 2000, 1 Gigabyte RAM, 2.4 Mhz. 80 Gig HD. 2) Laptop- MS
Windows XP Pro, 1 gigabyte RAM, 3.2 Mhz.. 80 Gig HD. Connection - Internet via broadband high-speed cable. Also
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accessed from laptop while travelling from dial-up modem at speeds ranging from 33 to 56 kbps and found it acceptable.
Getting Up and RunningWhen you receive the package containing the VectorVest manual, installation CD and two-day
seminar training CDs, follow the directions in the VectorVest Quick Start Guide. Install time will depend on computer
speed but took less than 20 minutes with the subject computers. Users had access to 8,053 U.S. stocks and 2,434
Canadian stocks (VectorVest Canada) at time of test in May 2006. It is recommended that you listen to the two-day
seminar to get up to speed to take advantage of the greatest number of program features from the start. Viewing Charts
 Viewing charts in the program is easy. Open VectorVest, type the stock symbol(s) you wish to view in the Quick Lookup
window and click either the Details, Report or Graph buttons. The Details window provides a quick snapshot of stock
fundamentals such as Price/Earnings, Dividend Yield, Annual Sales and Market Cap as well as a number of VectorVest
indicator values. Market technical details such as daily and average volume, opening and closing price, etc. are also
displayed. The Report window, provides an extensive overview of the company including Business, Sector and Group
together with full explanations of the VectorVest indicators such as Relative Value, Relative Safety, Relative Timing and
the VST, plus the VectorVest stock recommendation (Buy, Sell or Hold), Earnings per Share and a host of other
fundamental ratios and numbers useful in assessing the stock’s true value.

 The Graph window offers a host of options (please see right-hand side of chart in Figure 1). They include the Standard
(bars) and ProTrader (candlesticks) chart options, depending on what format you prefer. Standard charts provide a more
fundamental view while ProTrader charts offer a more technical chart view and include a number of useful technical
indicators. Using the text box or text balloon functions, it is easy to add notes to charts to include comments on
fundamental ratios, indicators and other useful information. Currently, the program provides end-of-day data only, but
there are plans for an intraday version in the works. Since this is an online version, there is no need to download and
update data on your computer. It is done automatically on the site. Figure 1 – Weekly VectorVest chart showing
the VectorVest Composite Index (VVC) of all 8,034 stocks so it presents a more accurate indication of the market than
the Dow Jones Industrial Average or other index with a limited number of issues. The blue line in the upper subgraph is
the current value of the index and is computed from forecasted earnings per share, forecasted earnings growth,
profitability, as well as rates of interest and inflation. The lower subgraph is the VectorVest Relative Timing Indicator.
Note that when value drops below price, a correction generally ensues; when value rises above price, price eventually
moves up. Chart provided by www.VectorVest.com.

 VectorVest’s USP (unique selling proposition) is the way the user can evaluate stock fundamentals in both
graphical and full text report format quickly and easily. Investors and technical traders will appreciate the way that the
fundamentals such as stock value, price/earnings and other ratios etc. are displayed graphically for rapid
evaluation. VectorVest proprietary indicators such as the VST, Relative Timing, Relative Safety and the Comfort Index are
effective in helping to choose winning stocks. They allow searches for stocks that are rebounding after a price
retracement or those that are safer bets with lower volatility. Users can also scan for divergences between stock price
and the Relative Timing indicator to warn of potential impending changes in trend at the top and bottom of moves. It is
worth taking the time to become familiar with these indicators for new users. Figure 2 – Weekly chart of the
VectorVest Composite (VVC) showing composite earnings growth (GRT) and Sales Growth (Sales GRT) from 1996 to
present. Besides these two, other indicators that can be included in the lower subgraph include corporate sales, volume,
average volume, price/earnings ratio, market cap (MC), dividend yield (DIV), growth/price/earnings (GPE), which is
similar to the Price Earnings Growth (PEG) ratio, as well as a number of proprietary VectorVest fundamental and
technical indicators. Chart provided by www.VectorVest.com VectorVest Tools Market Views – Not only can users
look at stocks (Stock Viewer), there is the ability to take a look at the industry (Industry Viewer), sector (Sector Viewer),
industry as well as details and charts of all three. Performance Graph – Allows comparison between stocks,
between a stock and an index, stocks and their industry, stocks and sector comparison or any combination of the above.

Market Timing Graph – Allows an examination of underlying market direction to evaluate market strength using a
combination of the VectorVest Composite, VectorVest Value and the Market Timing Indicator. This is a useful tool in
examining market breadth as well since it provides an instant snapshot of the buy/sell ratio or number of stocks with Buy,
Sell and Hold recommendations in the VectorVest universe of more than 8,000 stocks (2,400 in the Canadian
version). VectorVest Views – Daily and weekly market commentaries on overall market strength, the VectorVest
Composite (VVC) to examine market direction and strength, Market Timing Indicator (MTI) to determine whether the
overall market is in buy or sell mode and a recommended stock trading strategy for the week. UniSearch – This is
one of the most powerful features of the program. It allows users to choose from a list of pre-designed stock scanners or
design their own to search for stocks meeting a complex array of technical and/or fundamental conditions. Screens can
be set up to display search results in a variety of sorts such as highest to lowest Value, Price/Value, VST, Relative
Safety, Relative Timing, volume, rate of change or a host of other parameters. For example, investors employing the
CANSLIM approach (formula developed by William O’Neill), can scan for stocks with Current quarterly earnings
growth of a minimum 18%, Annual earnings growth minimum of 25%, New highs, Supply of shares below 100 million
shares, Leader of its industry or sector, with Institutional buying and where the Market is heading higher. Options Pricing
Model – Also included is the Black-Scholes Option Pricing Model to calculate theoretical values for American style
options. There is also an Options Rate of Return tool calculator included. Portfolio Management – VectorVest
provides functionality that allows investors to create a list of stocks in a portfolio and follow them as often as they like.
Stocks can also be back-tested using a variety of trading strategies to see how the strategies perform over time and
compare the returns to the VectorVest Composite index. The user can also create his or her own stock watch lists and
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update the list as new stocks meeting specific criteria are found. ConclusionThere are a number of online and
computerized stock screeners on the market today. The challenge is that most concentrate on either fundamentals or
technicals; few do an adequate job of integrating the two together for the new breed of fusion trader or
investor. VectorVest combines fundamental and technical search parameters in a fashion that allows the user to narrow
his or her search so that only stocks meeting the complex combination of fundamental and technical criteria are
produced. On top of well-known performance ratios, the program provides some very useful proprietary indicators to help
streamline the process. VectorVest is not perfect. Since it is a web-based program, it can be slower than a machined-
based program, and the speed at which it moves will depend on the speed of your Internet connection. Another
challenge with the program is that there are so many functions and possibilities available, it can seem daunting to the
new user. It is not for the faint of heart or uncommitted market player. But from this author’s perspective, such
shortfalls were far outweighed by the program’s benefits. In short, this reviewer has yet to find a program that is as
effective in finding stocks that meet a complex array of technical and fundamental conditions. It performed well in finding
stocks that had the potential to outperform in bull markets as well as the weakest candidates in bear markets. VectorVest
is a useful tool for the fusion trader or investor. Like all great players before them, the best of tomorrow will be those who
realize that the key to success in the market is finding and using anything that works in keeping them one step ahead of
the competition.




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