Zacks Investment Research, Inc. 10 S. Riverside Plaza, Suite 1600 Chicago, Illinois 60606

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1 Zacks Investment Research, Inc. 10 S. Riverside Plaza, Suite 1600 Chicago, Illinois 60606

2 Contents Introduction 3 Section 1: The Mental Aspect 4 Section 2: Investment Philosophy & Trade Selection 5 Section 3: Getting the Most Out of TAZR 7 Section 4: Follow the Leader 8 Section 5: How to Read TAZR Daily Alerts 9 Section 6: How to Read TAZR Daily Summary 10 Section 7: Virtues of Money Management 11 Section 8: Tying it All Together 12 2

3 Introduction: Congratulations! You have now joined the TAZR daily newsletter and trading service. I m Kevin Cook, Senior Stock Strategist at Zacks, and I m excited to have you join me in finding and trading stocks with 2 vital criteria in common: a great Zacks Rank and a compelling technical situation which could hand us frequent double-digit gains in a matter of one to three months. This is a perfect combination of the clear and simple approach to the fundamentals married to what the chart is saying. Pure technical traders will tell you that studying the fundamentals is unnecessary because everything you need to know about where a stock is going is in the chart. In other words, they believe that price behavior is already telling you what the large traders think about fundamentals. So the institutions like hedge funds, mutual funds, pension funds, insurance companies, endowments, and other big asset managers have already shown their hand about whether a stock is under accumulation or distribution. But the Zacks Rank has proven it can beat most stand-alone technical systems over time, especially as algos have changed trading. That s because earnings are still the most powerful long-term driver of stocks. And the Rank focuses on the most consistent short-term driver, earnings momentum as defined by analyst estimate revisions. So if we combine the Rank with a clear chart probability, we put the odds even more in our favor. I have traded many technical methods in my 20+ year career in futures, currencies, and equities. And another misconception I can put to rest is that trading is simple if you have just a few reliable setups. In reality, trading requires many types of skills and analysis. Like having a feel for the macro environment, knowing what is driving accumulation or distribution in an industry or stock, and then applying different setups for different conditions. For instance, if the market, sector, or industry is in a short-term down trend, you are getting ready to buy your favorite stocks when they hit a confluence of support and extreme oversold conditions, as measured by quantitative oscillators that also signal divergences. But in a steady uptrend, we want to focus on measured pullbacks, consolidations, and volume breakouts. When we apply the chartist s quantitative and intuitive eyes to Zacks #1 and #2 Rank stocks, we have an even stronger edge than the pure chartist. I look forward to using many technical analysis tools for you to catch the best 1-3 month rides on the earnings momentum launch pad! Kevin Cook 3

4 Section 1: The Mental Aspect It is important to realize how much investment success is related to what goes on between your ears. There are so many ways to get distracted and to question yourself while trading. You must be in the right frame of mind and have reasonable expectations to achieve success with this or any investment service. Be sure to pay attention to the tips in this section carefully. They will get you headed in the right direction. NOBODY IS 100% PERFECT First of all, there will be losing picks. Perhaps 40% or more of short-term trades will be closed for a loss. But if we cut them out early to minimize losses and maximize gains on winners, then we can achieve phenomenal results. A little known fact is that the Zacks Rank, even with its 26% annual return, is only right 56% of the time. We are extremely confident that over time we will produce substantial returns, but it is important that you learn to take losing picks in stride. TIMELINESS INCREASES ROI Let me ask you a question. Would you rather make +10% or +20% on a trade? Yes it s a trick question. The missing piece of the puzzle is how long each trade was held. Now let s say that the +10% gain was made in 3 months time, which computes to a +40% annual return. Whereas the +20% winner took 2 years to achieve and is really only good for a 10% annual gain. This example solidifies the power of timely stock trading that we will harness with this service. Often, we will be holding for 1 to 3 months and look to string together a series of +10%, +20%+ winners. From time to time, we will let winners run long enough to net +50% to +100% gains on the trade. CHERRY PICKING You can subscribe to this service and cherry pick. However, I urge you to fully investigate each TAZR opportunity as it shows up in the member portfolio. That builds knowledge each day. The best results from this service can be obtained by following up on Zacks.com with every recommendation, and then putting properly proportioned investment amounts into a dynamic and diverse portfolio of stocks. Think of 8-12% portfolio weight, on average. I am going to be looking for a fresh trade every week and the portfolio will carry 8-12 picks. 4

5 Section 2: Investment Philosophy & Trade Selection The Zacks TAZR will follow handpicked trades by Kevin Cook, Senior Stock Strategist at Zacks Investment Research. The best way to understand his investment philosophy and trade selection process is to first understand Kevin s background, beliefs, skills, and trading style. We asked Kevin to share that with you below. Background Beliefs Skills Began career as futures and options clerk in the pits of CME in 1994 Moved off-floor in 1998 to become electronic currency trader Became FX market maker in 1999 on the introduction of the euro Traded $100 million per day providing liquidity to biggest banks and funds Recruited in 2008 to build options education platform for largest firm in Chicago Mentored by elite equity options traders during financial crisis when VIX hit 80 Jumped to Zacks in 2011 to expand knowledge of quantitative equity analysis Markets are the most complex, dynamic, non-linear systems on the planet and that is why the Church of Technical Analysis needs to abandon trend lines Price often precedes fundamentals in the sense that it can move before everyone understands why as some large players are early to the party Charts give a picture of supply and demand but fundamentals can also be predictive of trend change Macro environment is ruled by interest rates, economic momentum, and policy while market is ruled by institutional investors and the investor-class wealth effect 6 Core Skillsets of Market Wizards must be fully understood and developed into investment and trading practices: Probability, Risk Management, Psychology, Discipline, Consistency, Systems There are few certainties in markets and one of the strongest skills is the ability to deal with ambiguity and complexity Trading is the greatest multidimensional strategy game ever invented Fast and emotion-free execution of trades, whether winner or loser 5

6 Trading Style Volatility and option derivatives analysis Self-taught in probability and statistics Developed PROP (Probability, Risk and Optimal Profit) Training & Simulation in 2004 to help traders internalize the golden rule of trading: Cut thy losses short and let thy winners run. Studied behavioral neuro-economics and discovered why so few traders are able to overcome their biases and emotional habits to deal with risk and ambiguity Earned private pilot s license at age 16 (a few years ago, wrote a short book for my father, my first instructor, explaining how everything he taught me about flying built a foundation for trading, especially with Planning, Preparation, & Discipline) Versed in Black Swan theory and why standard deviation is a false risk metric Simple price action like bottoming/topping patterns or higher lows/lower highs are still some of the most reliable views of supply and demand on a chart Use quantitative oscillators for extreme moves and divergence Use moving averages only to define trend, rarely for trading initiation without confluence (when 2 or more indicators line up to confirm a buy or sell signal) NEVER use straight trend lines, may use rough channels though Use ADX/DMI, Aroon, and Chaikin Indicators to signal trend/momo changes Use volatility tools like ATR and Bollinger Bands Use chart patterns as secondary look/feel that describes price action Use candlestick charts as best quick visual of price action Love consolidation patterns as waiting to breakout higher or lower Use volume when it speaks about whales taking or giving stakes Use Fibonacci as high-probability typical reaction Adaptive techniques that work as algos exploit every edge in the universe 6

7 Section 3: Getting The Most Out Of TAZR It is our job to provide you with timely and profitable stock picks, but there are steps that you can take to ensure your success with TAZR. Here are a few things you can do to get the most out of the product. Read this guide carefully This guide is your friend. It has valuable information on how to use the product and succeed with the assistance of TAZR. It gives you step-by-step instructions on how to receive alerts and what to do when you receive them. It has important money management tips. Have a working address This is necessary to receive trading alerts. Make sure you can access your in a timely fashion because acting on trades is essential to success. The Daily Summary will be sent by 9:00 p.m. EST and will summarize the positions as well as what happened on Wall Street during that trading day. Intra-day trading alerts will usually be sent out before 1:00 p.m. EST Unfortunately, many Internet service providers have software programs that filter out s you want to receive, like Zacks Profit from the Pros. To get optimal delivery of our s follow this link for quick and easy instructions. Have an online trading account We are not advocating any particular company for this, but ideally lower commissions will help you achieve a higher overall return. You will make several trades a month, and high commissions can really eat into your profit margin, especially if you have limited capital. Access the site To access the site, go to and enter your username and password. This will take you to the main page where you can view the portfolio, any pending trades, and the commentary. 7

8 Section 4: Follow the Leader With TAZR, it is easier to follow than to lead. It is recommended that you research each and every one of the picks to achieve overall success. The process to receive trades is very simple, yet we feel it is so important that we are going to spell it out for you. Here are the four steps: Receive the with the daily summary or intra-day signal. Read the to determine appropriate action. Place trades through your broker with the appropriate % allotted. Follow the Daily Summary to determine when to sell. Subscribers who realize the highest returns follow up on recommendations, and over time, learn about the successful stock signals to act on and which to pass on. Follow the signals and you ll maximize your opportunity for success. ACT PROMPTLY = MOST SUCCESS And if you don t beat the market, you can take advantage of our 100% Money Back Guarantee. SPEAKING OF THE GUARANTEE... We feel that if we are not able to live up to our word and help you beat the market then we shouldn t be deemed worthy enough to take your money. So in addition to the 90- day, no hassle guarantee, there is a 100% Money Back Performance Guarantee. There are a few conditions that have to be met first, but the bottom line is that we have to perform. Click here for details. 8

Section 5: How To Read TAZR Daily Alerts This strategy will have most trading alerts during the trading day. When a Buy Alert is sent out, you will typically receive the alert before 1:00 p.m. EST detailing what stock is being added and the rationale behind the move.

9 Section 5: How To Read TAZR Daily Alerts This strategy will have most trading alerts during the trading day. When a Buy Alert is sent out, you will typically receive the alert before 1:00 p.m. EST detailing what stock is being added and the rationale behind the move. Often, Kevin will give a buying range so that you can gauge whether you want to execute the trade immediately, or can do so the following day. Here is an example: Signal = The type of alert. It will be a green ball for a buy alert or red for a sell. Company Name = The name of the company that is being added to the TAZR portfolio. Symbol = Ticker symbol of stock being added to or deleted from the portfolio. Date = The date on which the stock was added to the portfolio. Portfolio Commentary = As part of the alert, Kevin will explain his rationale for the addition or deletion. You will learn his reasoning for adding the stock and the current price at which the stock is trading. 9

10 Section 6: How To Read The TAZR Daily Summary The Daily Summary provides a wide array of details for TAZR every Monday to Friday. This summary has the new signals initiated that day (if any) as well as the current open portfolio with daily commentary. This is valuable information. It conveys what our game plan is, why we are in each stock, when to get out and why, as well as any relevant news. This is ed to you around 8:00 p.m. EST. In regards to the price added for the portfolio, Zacks typically uses the midpoint of the price at the time of the alert and the stock s closing price on the day the stock is added. 10

11 Section 7: Virtues Of Money Management Money management can be the difference between realizing large gains and going broke, even if the winning percentage is the same. How can this be? The key point is that winning investors know to ride their winners and cut their losses quickly, and stick with a plan that has proven to work in the past. Here are a few rules that you can follow to further improve your returns: First of all, don t dump your entire portfolio into these TAZR picks. Only allocate that portion of your capital that can be comfortably devoted to speculation. Again, do not allocate your entire equity portfolio to TAZR. Your TAZR portfolio should hold around 10 positions depending on market conditions. You should be able to sleep soundly and act rationally if you are only trading with your speculative money, and trading predominantly on the time-tested strength of the Zacks Rank. Keep in mind that reinvesting profits and the power of compounding are your friends in a any Zacks services. Singles add up to be a home-run in the end when the phenomenon of compounding works its magic. EVER-PRESENT CLICHÉ RINGS TRUE This is a trading service with many stock-picking ideas coming at you per quarter because that is the proven design of the Zacks Rank which focuses on earnings momentum over 1-3 months. It has been said millions of times before, but it is so important it needs to be said again: Don t put all your eggs in one basket. Even if you are the most brilliant investor in the world, there will be losing trades. The key is to stay in the game and build your equity over time in a systematic way. This can only be done when diversification is put to use. Not that we have to remind you, but the main point is that your capital was earned through years and years of hard work. Capital conservation sounds boring, but without it, you are fighting a losing battle. We don t want to see the money you have put your blood, sweat, and tears into evaporate due to lack of discipline. 11

12 Section 8: Tying It All Together It is our goal at Zacks to enhance your trading results via TAZR service. This booklet touches upon the details of the service and provides several useful tips to realize the vast potential that service holds. We feel it is our job to let you know that we are here to help you get the most out of TAZR Alerts. Again, let s go over some of the important points made in this booklet. Follow Up on Every Single Trade Small Gains Add Up To Big Results Not Every Trade Will Be A Winner Timeliness Is Of The Essence Money Management Matters Greatly Have A Working Address We Are Here To Help The last point is important as we have free customer support that should be taken advantage of. Additional questions that you may have can be answered by just picking up the phone and giving us a call or ing us: (outside the US, ) or tazr@zacks.com. 12

Zacks Investment Research, Inc. 10 S. Riverside Plaza, Suite 1600 Chicago, Illinois 60606

www.zacks.com/counterstrike Zacks Investment Research, Inc. 10 S. Riverside Plaza, Suite 1600 Chicago, Illinois 60606 Contents Introduction 2 Section 1: The Mental Aspect 3 Section 2: Getting the Most