Disclaimer - zacksrw.com

1 Disclaimer 2011 Zacks Investment ResearchAll Rights performance calculations for the Research Wizard strategies were produced through the backtesting feature of the Research Wizard using the DBCMHIST database and consist of the total return (price changes + dividends) of an equal weighted portfolio. Returns are calculated on a specified periodic basis (most often one or four weeks) and assume no transaction costs. The portfolio is rebalanced at the start of each new period. Returns can be stated as either annualized or trading/investing involves risk and you can lose some or all of your investment. Hypothetical or backtested results may not always be duplicated in the real world. Backtesting can at times produce an unintended look-ahead bias. Results can also at times be over or understated due to the exclusion of inactive companies.

2 In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading, not the least of which is the ability to withstand losses or to adhere to a particular trading strategy in spite of trading losses. These are material points which can also adversely affect actual trading results. The backtested results prepared for these materials were done using the DBCMHIST database and consisted of only active companies. The Research Wizard program has been aligned, to the extent possible, to eliminate look-ahead bias. Zacks however cannotmake any guarantees in regard to this or any other possible limitation. For more information on backtesting, please go to: performance of the Zacks Rank portfolios for annual and year-to-date periods are the linked monthly total returns (price changes + dividends) of equal weighted hypothetical portfolios, consisting of those stocks with the indicated Zacks Rank, assuming monthly rebalancing and zero transaction costs.

3 These are not the returns of actual portfolios. The hypothetical portfolios were created at the beginning of each month from January 1988 forward based on the values of the Zacks Rank available to Zacks' clients before the beginning of each month. The portfolios created monthly from 1988 through September 2006 exclude ADRs and are comprised of stocks that have the indicated Zacks Rank and were covered by at least two analysts at the time of the stocks inclusion in the portfolio. Starting in October 2006 and going forward, the portfolios are comprised of all stocks with the indicated Zacks Rank and do not exclude ADRs, which is more reflective of thelist of stocks that customers will find on the Zacks web sites. These performance numbers have been audited from 1995 through2003 by Virchow, Krause & Company, S&P 500 Index ("S&P 500") is a well-known, unmanaged index of the prices of 500 large-company common stocks selectedby Standard & Poor's.

4 The S&P 500 includes the reinvestment of all dividends, no transaction costs, and represents the grossreturns before management fees. Zacks Method for Trading: Home Study Course Workbook 2011 Zacks Investment ResearchAll Rights of ContentsDisclaimer ..iiTable of Contents ..iiiSymbol Guide ..ivLesson 3 (part 1)Creating Screens and Trading Strategies and Backtesting Them for Success ..1 Creating Your Own Screens ..2 More than Proven, Profitable Strategies ..2 The Research Wizard ..3 The Importance of Screening and Backtesting ..4 Backtesting ..5 Step 1: Identify ..7 Fundamental Trading Styles ..8 Momentum ..8 Aggressive Growth ..9 Value ..9 Growth & Income ..9 All Style Style ..9 Big Money Price Momentum Screen ..11 Aggressive Growth Screen ..13 Value Screen ..14 Growth & Income Screen ..16 All Style Style ..17 Growth and Value.

5 17 Ranking Parameters ..19 Hot Maps ..21 How to Use Hot Maps ..23 Changes in the Zacks Rank ..24 Table of Contents 2011 Zacks Investment ResearchAll Rights GuideTo assist you in the use of this Zacks Method for Trading:Home Study Course Workbook, iconshave been used to identify specific areas of interest. They include:Assignment:Identifies areas that require completion before moving on to the next lesson in the :Identifies activities or exercises used to review or test your knowledge in the application of the tools or Point:Identifies objects, lessons, main ideas or terms to help you gain expertisewhile developing strategies for :Designates practical information helpful in gaining knowledge and understandingof the Zacks Method for Trading in the stock :Indicates an area provided in your workbook allowing you to take notes and recordadditional information from your personal studies.

6 Objectives:Identifies information as well as targeted areas for discussion to be coveredduring your home study Snapshot:Provides a brief summary or recap of topics or concepts covered in the Address:Indicates a website or web address with supporting information or additional resources to help develop your GuideLesson Three (part 1) Creating Screens and Trading Strategies and Backtesting Them for Success1 Plan to devote a minimum of 15-30 minutes per day to completing the assignments and exercises foreach lesson. It is imperative to spend time educating yourself about the market in order to have long-term success and consistency in profitable following assignments will help you in understanding the information in this lesson: Watch the following DVDs:Disc 3: Screening for Stocks and Creating Your Own Trading StrategiesDisc 4: Backtesting Your Strategies for SuccessThe objectives for this lesson include: Creating Your Own Screens The Importance of Screening and Backtesting Step 1: Identify Trading StylesAssignments and ExercisesObjectivesZacks Method for Trading: Home Study Course Workbook 2011 Zacks Investment ResearchAll Rights than Proven, Profitable StrategiesThe Zacks Method for Trading and the Research Wizard program are more than just ourproven, profitable trading strategies.

7 The Zacks Method for Trading is also about using the righttools. The strategies highlighted in the previous lessons were all made possible by the use ofscreening and backtesting. And as we mentioned before, the Research Wizard screening andbacktesting program is a complete Research Tool. Creating Your Own Screens and Trading Systemswith the Research WizardCreating Your Own Screens Notes3 The return numbers presented assume no transaction costs. Details of how Zacks calculatesperformance for the Zacks Rank Portfolios and the backtested strategies can be found onpage ii and at Research Wizard: Is a screening and stock-picking tool- Create your own screens and trading strategies or pick and choose from thepre-defined screens and strategies that Zacks has already created Allows you to rank your stocks and Industries- See which Sectors and Industries are the best- See which stocks are the best in its Sectors and Industries and in your lists Gives you access to company reports and the ability to customize your own- Access company reports and equity research- Customize your own reports to see the most important data to you- View charts and fundamental overlay studies Helps you manage ticker lists and portfolios Lets you backtest your stock picking ideas and trading strategies- test your screens and trading strategies in all market conditions to see how theywork before you tradeIt comes with.

8 Over 8,600 stocks in its Universe Over 650 different fundamental data items to pick and choose from The ability to create your own customized items- compare one item to another item- combine different items together- compare an item s value to its value from a different time period Over 50 pre-defined screens and proven, profitable trading strategies created by Zacks Access to historical dataAnd Three Creating Screens and Trading Strategies and Backtesting Them for SuccessNotesZacks Method for Trading: Home Study Course Workbook 2011 Zacks Investment ResearchAll Rights Importance of Screening and BacktestingYou may be asking yourself, Why should I use a Stock Screener ? The short answer is, Because there are over 10,000 stocks out there and you need a way tofind the good ones . The longer answer is: Other than buying the stocks that are talked about on TV or written aboutin the paper or touted on the Internet (not to mention tips from a friend), how else are you goingto find stocks that meet certain fundamental characteristics?

9 Screening Why Should I Use a Stock Screener?Even if you don t use a screener now, most people still do their own screening one way or another. They may hear that a stock has a certain growth rate, or a certain P/E ratio or salessurprise, etc. They then find themselves listening for or reading about or surfing the Internet forstocks that meet this criteria. Why Should I Use a Stock Screener?Notes5 The return numbers presented assume no transaction costs. Details of how Zacks calculatesperformance for the Zacks Rank Portfolios and the backtested strategies can be found onpage ii and at Three Creating Screens and Trading Strategies and Backtesting Them for SuccessNotesWell, if you want to find stocks that meet certain criteria, you can find them quicker and easierand more accurately with a stock screener. However, just because you narrowed down 10,000stocks to only a handful, doesn t necessarily mean that you ve picked the best stocks.

10 You mayhave picked the worst ones. But how will you know? Backtesting Once you ve created a screen, you can then backtest it to see how good your screening strategy has performed in the past. In other words, does your screening strategy generally findstocks that go up once they ve been identified or does your screen generally find stocks that godown once they ve been identified?BacktestingKey Point To find stocks meeting certain criteria, you can find them quickly and easilywith a stock Method for Trading: Home Study Course Workbook 2011 Zacks Investment ResearchAll Rights backtesting, you can see how successful your stock picking strategy has performed in thepast, so you ll have a better idea as to what your probability of success will be, now and in thefuture. Of course, past performance is no guarantee of future results. But if you saw a stock pickingstrategy that did nothing but lose money, year after year, period after period, stock after stock,over and over again, there s no way you d want to trade that particular strategy or use thatscreen to pick stocks with.