Complete Transparency: How the TradeDots AI Score Ranks 1,000+ Stocks Daily
Learning Objectives:
Understand the complete TradeDots AI Score algorithm
Learn all 10 weighted factors and their calculation methods
See why each factor matters for day trading and swing trading
Understand statistical validation and backtesting methodology
Interpret AI Scores and confidence levels
Apply the ranking system to find best daily opportunities
Time: 90-110 minutes | Prerequisites: Statistical Thinking, Momentum | Difficulty: Advanced
Best For: Understanding AI stock ranking, transparency seekers, systematic stock selection
Why Full Algorithm Transparency?
The "Black Box" Problem in Trading Algorithms
What most trading platforms do:
"Our AI ranks stocks" (no explanation)
"Proprietary algorithm" (hidden, can't verify)
"Machine learning" (meaningless buzzword)
"Trust us, it works" (no validation)
Problems with black box algorithms:
No accountability: Algorithm can change without notice
No verification: Can't validate if it actually works
Overfitting risk: May be curve-fit to past data, fails in future
No learning: Users don't understand why stocks are ranked
No trust: "Garbage in, garbage out" - if inputs unknown, output meaningless
The TradeDots Difference: Complete Transparency
Our approach:
Full disclosure: Every factor, every weight, every calculation formula
Why, not just what: Explain why each factor matters
Statistical validation: Show backtested performance data
Built on principles: Based on market fundamentals, not data mining
Auditable: You can verify the math yourself
Educational: Learn what makes stocks rank highly
Result: You understand why a stock ranks #1 vs #500, and can evaluate if the algorithm makes sense for your strategy.
What is the AI App?
TradeDots AI App = Real-time ranking of 1,000+ liquid US stocks (market cap >$500M) updated every minute during market hours.
The TradeDots AI Score = Composite score (0-100) combining 10 weighted factors to identify stocks with highest probability of significant price movement in the next 1-5 days.
Target user: Day traders and swing traders looking for momentum and volatility opportunities.
What High AI Score Means
Score 80-100 (Top 1-5%)
Extremely strong momentum + volume + technical setup
Highest probability of significant move (>5-10% in 1-5 days)
Best risk/reward setups
Prime candidates for day trading and swing trading
Score 60-79 (Top 5-20%)
Strong momentum + most technical factors aligned
Good probability of moderate move (3-7% in 1-5 days)
Solid trading candidates
Score 40-59 (Middle 20-60%)
Moderate momentum, some factors aligned
Mixed signals, lower conviction
Watchlist candidates, wait for score improvement
Score 20-39 (Bottom 20-40%)
Weak momentum, few factors aligned
Low probability setups
Generally avoid
Score 0-19 (Bottom 1-20%)
Very weak or negative momentum
Bearish signals
Short candidates or avoid entirely
[CHART EXAMPLE: TradeDots AI App score distribution showing percentile rankings]
The 10 Weighted Factors
The 10 Factors (Ranked by Importance)
Our algorithm evaluates stocks across 10 quantitative factors. Each factor is weighted based on its proven predictive power from extensive backtesting, with the most predictive factors having greater influence on the final score.
Primary Factors (Highest Impact):
Price Momentum - Recent price strength and directional movement
Volume Surge - Institutional participation confirmation
Relative Strength - Outperformance vs market benchmark
Technical Indicator Alignment - Multi-indicator trend consensus
Secondary Factors (Moderate Impact):
Volatility - Profit opportunity size (daily price range)
Support/Resistance Proximity - Risk/reward entry positioning
Price Pattern Recognition - Chart pattern identification
Momentum Persistence - Multi-timeframe directional consistency
Supporting Factors (Lower Impact):
Liquidity - Tradability and execution quality
Recent Breakout - Structural price level breaks
The combination of all factors creates a comprehensive 0-100 ranking system where higher scores indicate stocks with the best combination of momentum, volume, technical setup, and trade execution characteristics.
Factor 1: Price Momentum (Short-term)
What it measures: How strongly and quickly the stock price has been moving recently.
Why it matters: Stocks with strong recent momentum tend to continue moving in the same direction (momentum persistence). This phenomenon is well-documented in academic research and forms the foundation of short-term trading strategies. Day traders need stocks that are moving now - not stocks that moved last month or might move next quarter.
How we evaluate it:
We analyze recent price changes over both short and medium timeframes
Compare the stock's momentum to all other stocks in the market
Stocks with the strongest upward momentum receive the highest scores
This factor carries the most weight in our algorithm because momentum is the single strongest predictor of continued price movement
What high scores mean:
Stock has been significantly outperforming the market recently
Price is moving with strong directional conviction
Higher probability of continued movement in the same direction
Most attractive for capturing quick profits in trending moves
Example: If a stock has gained 12% over the past two weeks while most stocks gained only 2-3%, it would receive a very high momentum score, signaling exceptionally strong buying pressure and high probability of continuation.
Factor 2: Volume Surge
What it measures: Whether today's trading volume is significantly higher than the stock's typical average volume.
Why it matters: Volume is the validation mechanism for price moves. High volume confirms that institutional investors (hedge funds, mutual funds) are participating - these moves tend to be sustainable. Low volume moves are often retail-only activity that lacks conviction and frequently reverses. Volume is the difference between a move that continues versus one that fades.
How we evaluate it:
We compare current trading volume to the stock's recent average volume patterns
Calculate how many times above or below typical volume today's activity represents
Stocks with significant volume surges (well above average) score highest
Below-average volume receives low scores, indicating weak conviction
This is our second-highest weighted factor because volume confirmation is critical
What high scores mean:
Volume is substantially above normal levels
Institutional investors are actively participating (not just retail)
Price move is validated by strong buyer/seller conviction
Much higher probability that momentum continues rather than reverses
Example: If a stock typically trades 2 million shares per day but today has 6 million shares (a 3x surge), this would receive a top score. The exceptional volume indicates major institutional involvement and validates that the price movement has strong conviction behind it.
Factor 3: Relative Strength
What it measures: How the stock's recent performance compares to the overall market (S&P 500).
Why it matters: Stocks outperforming the market are sector leaders and often have institutional accumulation occurring. When a stock gains 5% while the market only gains 1%, that extra 4% of relative strength indicates the stock has specific catalysts or buying pressure beyond general market movement. Relative strength identifies which stocks institutions are favoring - these tend to continue outperforming.
How we evaluate it:
We compare the stock's recent return to the S&P 500's return over the same period
Calculate the performance differential (outperformance or underperformance)
Stocks with strongest outperformance relative to the market score highest
Stocks underperforming the market receive low scores (even if up nominally)
This factor is heavily weighted because relative strength is a strong predictor of continued outperformance
What high scores mean:
Stock is significantly outperforming the broad market
Likely has sector-specific or company-specific positive catalysts
Institutional investors are accumulating (buying more than selling)
Higher probability of continued outperformance (strength begets strength)
Example: If the market (SPY) gained 2% over recent trading days but a stock gained 14%, that stock has exceptional relative strength (+12% above market). This massive outperformance signals strong institutional interest and sector leadership, making it a prime candidate for continued gains.
Factor 4: Volatility
What it measures: Stock price volatility - how much the price typically moves in a day.
Why it matters: Day traders need stocks that move significantly. Higher volatility means larger potential profit opportunities but also requires wider stops (more risk per trade). Low volatility stocks may not move enough to justify the risk - even a perfect technical setup can't overcome insufficient price range. Volatility determines whether a stock is worth trading at all from a risk/reward perspective.
How we evaluate it:
We measure the average daily price range over recent trading periods
Convert this to a percentage of the stock's current price
Stocks with larger percentage ranges (more volatile) score higher
Very volatile stocks (large daily swings) receive top scores
Low volatility stocks (small intraday ranges) receive lower scores
What high scores mean:
Stock typically has large intraday price swings
Good candidate for day trading (significant profit opportunity)
Requires wider stops to accommodate the larger ranges
Usually has active options market (institutional interest)
Example: A stock priced at $75 that typically moves $4-5 per day would score highly on volatility. This 5-7% daily range provides ample opportunity for quick profits, though it also requires accepting wider stops to avoid getting shaken out of good positions.
Factor 5: Technical Indicator Alignment
What it measures: Consensus across multiple technical indicators - do RSI, MACD, and moving averages all agree on trend direction?
Why it matters: When multiple technical indicators point in the same direction, the probability of trend continuation increases significantly. This multi-indicator consensus reduces false signals - a stock might show strong momentum, but if technical indicators are conflicting (some bullish, some bearish), it's often a false move. Alignment acts as a quality filter, separating high-conviction setups from choppy, unreliable situations.
How we evaluate it:
We analyze several widely-used technical indicators including oscillators (RSI, MACD) and trend-following tools (moving averages)
Check whether each indicator is showing bullish or bearish signals
Stocks where all indicators agree in the same direction score highest
Mixed signals (some bullish, some bearish) receive lower scores
This factor is heavily weighted because indicator consensus is a strong confirmation tool
What high scores mean:
Technical indicators are in complete agreement on trend direction
Reduces false breakout risk significantly
Higher probability the trend continues (validated by multiple methods)
Best setups occur when momentum AND technical indicators align
Example: If a stock shows strong upward momentum AND has bullish RSI, bullish MACD, price above moving averages, and moving averages properly aligned, it receives a perfect alignment score. This means the trend is validated by multiple independent analytical methods, not just one indicator that could be giving a false signal.
Factor 6: Support/Resistance Proximity
What it measures: How close the current price is to key support levels (for long setups) or resistance levels (for short setups).
Why it matters: The best entries occur near support levels in uptrends (pullbacks to support) or near resistance in downtrends (rallies to resistance). Buying near support offers better risk/reward - you can place tighter stops just below support, limiting downside risk while maintaining upside potential. Conversely, entering far from support means you're "chasing" and risk getting caught in a reversal.
How we evaluate it:
We identify key support and resistance levels using swing highs/lows, round numbers, and moving averages
Calculate how far the current price is from the nearest relevant level
Stocks very close to support (in uptrends) score highest - these are optimal entry zones
Stocks far from support score lower - poor risk/reward positioning
This factor helps identify the best timing within trending stocks
What high scores mean:
Price is at or very near a key support level
Excellent risk/reward setup (tight stop placement possible)
High probability of bounce/continuation from support
Best entry point for minimizing risk per trade
Example: If a stock is in an uptrend and currently trading just 2-3% above a major support level (previous swing low at $50, now at $52), it scores highly on proximity. This positioning allows for a stop just below $50, risking only $2-3 per share while maintaining full upside potential.
Factor 7: Price Pattern Recognition
What it measures: Presence of bullish chart patterns (bull flags, triangles, breakouts) or bearish patterns.
Why it matters: Chart patterns predict likely direction and magnitude of the next move. Patterns form when buyers and sellers reach equilibrium at certain price levels, then break in a directional move. Algorithmic pattern recognition filters for high-probability technical setups that experienced traders look for manually. Patterns provide both direction (which way) and often price targets (how far).
How we evaluate it:
We scan for major bullish and bearish chart patterns including flags, triangles, and reversal formations
Analyze pattern quality, completion status, and volume confirmation
High-probability bullish patterns (clear bull flags, ascending triangles at apex) score highest
Moderate-probability patterns (symmetrical triangles, consolidations) score moderately
No clear pattern scores neutral; bearish patterns score low
What high scores mean:
Clear, high-probability bullish pattern detected
Pattern is well-formed with proper structure
Often indicates imminent directional move
Provides both entry timing and potential price targets
Example: If a stock forms a clean ascending triangle pattern - higher lows approaching resistance - and is currently at the apex ready to break out, it receives a high pattern score. This setup has historically high success rates when combined with volume confirmation.
Factor 8: Momentum Persistence
What it measures: Whether momentum is consistent across multiple timeframes - does the stock show strength on both short-term and longer-term charts?
Why it matters: When momentum aligns across multiple timeframes (intraday, daily, weekly), the trend is more reliable and likely to continue. Divergence between timeframes (strong short-term but weak longer-term) often signals false moves or unsustainable momentum.
How we evaluate it:
We analyze momentum across multiple time horizons from very short-term to intermediate-term
Check whether the price trend is consistent (all timeframes showing same direction)
Stocks with perfect alignment across all timeframes receive highest scores
Mixed signals (some timeframes bullish, some bearish) indicate choppy or unreliable momentum
What high scores mean:
Momentum is validated across multiple timeframes (high conviction)
Trend is more likely to persist (less false signal risk)
Reduces whipsaw risk from single-timeframe analysis
Example: If a stock shows strong upward momentum on 1-day, 5-day, 10-day, and 20-day timeframes simultaneously, it demonstrates perfect persistence. This multi-timeframe confirmation significantly increases the probability of continued trend movement.
Factor 9: Liquidity Score
What it measures: How easily a stock can be traded without affecting its price - evaluates trading volume, market capitalization, and bid-ask spreads.
Why it matters: Day traders need liquid stocks to ensure easy entry and exit without slippage. Illiquid stocks have wider spreads (higher transaction costs), difficulty getting fills at desired prices, and execution risk. Liquidity is a fundamental requirement for active trading strategies.
How we evaluate it:
We assess average daily trading volume to ensure sufficient market participation
Evaluate market capitalization as a proxy for institutional interest and stability
Analyze bid-ask spreads to measure transaction cost efficiency
Stocks must meet minimum liquidity thresholds to appear on AI App
What high scores mean:
Stock has robust daily trading volume (easy to enter/exit positions)
Tight bid-ask spreads minimize transaction costs
Large enough market cap to attract institutional liquidity
Low slippage risk even with larger position sizes
Example: A stock with millions of shares traded daily, a multi-billion dollar market cap, and tight spreads (fractional percentage) would score highly on liquidity. This ensures you can execute trades quickly at fair prices without moving the market.
Factor 10: Recent Breakout/Breakdown
What it measures: Whether the stock recently broke through a significant support or resistance level with strong volume confirmation.
Why it matters: Breakouts and breakdowns often lead to momentum continuation as the stock moves into new price territory. Fresh breakouts are particularly powerful because they represent a shift in market sentiment and often trigger follow-through buying or selling. The fresher the breakout, the higher the probability of continuation.
How we evaluate it:
Identify recent breaks of key technical levels (support or resistance)
Verify breakout occurred with significantly elevated volume (institutional confirmation)
Assess how recent the breakout is (fresher breakouts score higher)
Distinguish between high-conviction breakouts and false breaks
What high scores mean:
Stock recently broke a major technical level
Breakout confirmed by strong volume (not a weak, low-volume break)
Timing is fresh, meaning the initial momentum phase is still active
Higher probability of trend continuation in breakout direction
Example: If a stock breaks above a long-standing resistance level with volume much higher than average, and this occurred very recently, it would receive a high breakout score. This represents a timing bonus - the stock is in the early stages of a potential new trend.
Understanding Your AI Score
How the Final Score is Calculated
The TradeDots AI Score is a composite metric (0-100) that combines all 10 factors we've discussed. Each factor contributes to the final score based on:
Individual factor performance - How well the stock performs on that specific factor compared to all other stocks
Factor weighting - Each factor's proven importance from our backtesting research
Aggregation - All weighted factor scores are combined into a single 0-100 ranking
The result: A single number that represents overall trading opportunity quality across momentum, volume, technical setup, patterns, and market conditions.
Score Interpretation Guide
90-100 (Exceptional - Top 1%):
Elite setups with strength across nearly all factors
Highest historical win rates and returns
Prime candidates for both day trading and swing trading
Example: Strong momentum + volume surge + technical alignment + breakout + relative strength
80-89 (Strong - Top 5-10%):
Very strong setups with most factors aligned
High probability trades with good risk/reward
Excellent for swing trading, good for selective day trading
May have one or two weaker factors but overall very solid
70-79 (Good - Top 10-20%):
Solid setups worth considering
Several factors aligned, moderate conviction
Better suited for swing trading than day trading
Good secondary candidates when top-tier stocks are limited
60-69 (Moderate - Top 20-30%):
Mixed signals, some strength but also weaknesses
Lower conviction, requires additional confirmation
Use with caution, tighter stops recommended
Better to wait for higher-scoring opportunities
Below 60 (Avoid for Long Trades):
Weak setups with conflicting signals or poor momentum
Low historical win rates
Higher risk of false moves and reversals
Focus your capital on higher-scoring stocks instead
What Makes a Stock Score Highly?
Characteristics of 90+ scoring stocks:
Strong, persistent momentum across multiple timeframes
Significantly elevated volume (institutional participation)
Outperforming the broader market
Technical indicators in clear agreement
Clean chart patterns or recent breakouts
High volatility providing profit opportunity
All elements working together in harmony
Why some strong stocks score moderately (70-79):
May have excellent momentum but low volume (factor imbalance)
Strong technical setup but weak relative strength vs market
Good fundamentals but poor timing (no recent breakout)
Remember: The algorithm optimizes for SHORT-TERM trading setups, not long-term investment quality
Using AI Scores in Your Trading Workflow
Morning Routine: Sort AI App by score (highest first)
Shortlist: Focus on top 10-20 stocks (scores typically 80+)
Chart Review: Apply your indicators to shortlisted stocks
Final Selection: Choose 2-5 highest-conviction setups
Execution: Trade the best opportunities with defined risk
Key principle: Quality over quantity. Better to trade 3 exceptional setups (95+ scores) than 15 mediocre ones (65-75 scores).
Statistical Validation and Backtesting
Methodology
Backtesting period: 3 years (2022-2024), 750+ trading days
Process:
Calculate AI Score for all stocks daily (as of market close)
Measure forward returns:
1-day forward return
5-day forward return
10-day forward return
Group stocks by AI Score decile (0-10, 10-20, ..., 90-100)
Calculate average returns and win rates for each decile
Results
AI Score | Avg 5-Day Return | Win Rate (5-day) | Avg Max Gain (5-day) | Sharpe Ratio |
90-100 (Top 1%) | +7.2% | 68% | +12.5% | 1.85 |
80-89 (Top 5%) | +5.1% | 64% | +9.8% | 1.52 |
70-79 (Top 10%) | +3.8% | 61% | +7.2% | 1.28 |
60-69 (Top 20%) | +2.4% | 57% | +5.5% | 0.95 |
50-59 (Middle) | +1.2% | 52% | +3.8% | 0.42 |
40-49 | +0.5% | 49% | +2.1% | 0.15 |
30-39 | -0.3% | 46% | +1.2% | -0.08 |
20-29 | -1.2% | 43% | +0.8% | -0.35 |
10-19 | -2.5% | 39% | -0.2% | -0.68 |
0-9 (Bottom 1%) | -4.1% | 34% | -1.5% | -1.12 |
Key findings:
Clear correlation: Higher score = higher returns and win rates
Top decile (90-100): 68% win rate, +7.2% average 5-day return (excellent for day/swing trading)
Top quintile (80-100): 64-68% win rate, +5-7% returns
Middle scores (40-60): Near-random (50-52% win rate, minimal returns)
Bottom decile (0-10): Negative returns (-4.1%), poor win rate (34%) - avoid or short
Sharpe ratio interpretation:
Top decile: 1.85 (excellent risk-adjusted returns)
Bottom decile: -1.12 (consistent losses)
Conclusion: Algorithm has strong predictive power. Top-ranked stocks significantly outperform, justifying the multi-factor approach.
[CHART EXAMPLE: Performance by AI Score decile graph]
How to Use AI Scores
Daily Workflow
Morning routine (before market open):
Open AI App (sorted by score, descending)
Review top 10-20 stocks (scores 85-100)
Check charts for each using TradingView indicators
Identify 3-5 highest-conviction setups (score + chart confirmation)
Set alerts for entries
During market hours:
Monitor your shortlist for entry signals
AI App updates every minute (scores change with price/volume)
Add newly high-scoring stocks to watchlist
After market close:
Review trades and high-scoring stocks that moved
Prepare watchlist for next day
Score-Based Trading Strategies
Strategy 1: Top 5 Daily (Simple)
Trade only stocks ranking #1-5 (scores typically 90-100)
Use any TradeDots indicator for entry timing
Hold 1-5 days depending on momentum
Expected: 65-70% win rate, 5-8% average returns
Strategy 2: Score + Indicator Confirmation (Moderate)
AI Score e80
Buy Sell Signals V2 buy arrow
Price at demand zone or Supertrend support
Expected: 70-75% win rate, 6-10% returns
Strategy 3: Top 20 Rotation (Diversified)
Hold 5-10 positions from top 20 stocks
Rebalance daily (sell fallen stocks, buy newly high-ranking)
Use trailing stops
Expected: 60-65% win rate, 4-6% per position, portfolio-level diversification
Proprietary Implementation Details
Our Commitment to Transparency and IP Protection
At TradeDots, we believe in education-first transparency while protecting the intellectual property that makes our tools valuable. This documentation represents our balanced approach:
What We Share:
✅ What each factor measures - The market phenomena we're quantifying
✅ Why each factor matters - The trading principles and market behavior behind our choices
✅ How factors are evaluated - The general approach and methodology
✅ Statistical validation - Real backtesting results proving effectiveness
✅ Practical usage - How to interpret scores and integrate into your trading workflow
What Remains Proprietary:
🔒 Exact mathematical formulas - Precise calculations and normalization methods
🔒 Specific thresholds and parameters - Optimized values from years of research
🔒 Scoring algorithms - Detailed point allocation and weighting coefficients
🔒 Implementation details - Technical infrastructure and real-time calculation methods
Why This Approach?
For traders (you): You understand what the algorithm evaluates and why it matters. This builds trust and helps you make informed decisions about how to use AI Scores in your trading. You're not blindly following a black-box system.
For TradeDots: We protect 3+ years of quantitative research, backtesting, and factor optimization. This IP protection allows us to continue investing in algorithm improvements and maintain competitive advantage.
The result: You get a powerful, validated tool with educational transparency, while we preserve the proprietary research that makes it valuable.
Educational Philosophy
We provide enough detail for you to:
Understand the market principles behind each factor
Verify the approach makes logical sense (not arbitrary)
See statistical proof the algorithm works (backtesting results)
Use the tool confidently with full context
Combine AI App intelligently with your own analysis
But not so much detail that:
Competitors can replicate our research effort
The precise implementation can be reverse-engineered
Years of optimization work becomes public domain
Bottom line: Trust through transparency, value through innovation. We show you what and why, while protecting exactly how. This is how professional-grade trading tools should work.
Key Takeaways
✅ 10 weighted factors: Momentum, Volume, Relative Strength, Volatility, Technical Alignment, and supporting factors - each weighted by proven predictive power
✅ Conceptual transparency: What each factor measures, why it matters, and how it's evaluated - with proprietary implementation details protected
✅ Statistically validated: 68% win rate for top decile (90-100 scores) over 3 years
✅ Built on principles: Market fundamentals (momentum persistence, volume confirmation, relative strength), not curve-fitting
✅ Daily updated: Scores recalculate every minute based on real-time price/volume
✅ Actionable: Focus on top 10-20 stocks (scores 85+) for highest-probability setups
✅ Combine with indicators: TradeDots AI App finds what to trade, indicators time when to trade
Next Steps
Continue to: Using AI App Effectively to learn practical workflows for daily stock selection.
Or explore: AI Chat Feature to see how AI analyzes AI App stocks and provides trade ideas.
Practice: Track top 10 AI App stocks daily for 2 weeks. Note which factors are strongest in best performers.
Remember: The TradeDots AI App Algorithm isn't magicit's systematic quantification of what technical traders look for manually. We've automated scanning 1,000+ stocks for momentum + volume + relative strength + technical alignment + patterns. The transparency lets you verify it makes sense, and the backtested results prove it works. Use it to narrow 1,000 stocks to 10-20 highest-probability candidates, then use indicators to time your entries.