A.I.M. Users Bulletin Board

[ls7550]

Hi Toofuzzy : RE delayed trades

Another problem I have with delayed trades is when you have big moves

The simplest form of ocroft delayed trading is to follow all AIM sell trades as indicated, but delay all AIM buy trades until after they've stopped and only then reviewing/trading according to whatever AIM was indicating to buy at that time (or maybe not).

For recording keeping when AIM indicates a buy you record that trade as having occurred without actually placing any purchase order. Next review, another buy, then again adjust records as though a trade had occurred without actually trading. Next review, no AIM buy trade indicated then scratch those two prior paper based trades and see what AIM is now suggesting and follow that through with a actual trade if any buy trades are being indicated and adjust AIM records accordingly.

When I apply that rule to a 50/50 SSO/VFISX backtest since 2006 conventional AIM achieves a reward that nigh on exactly tracks 100% SPY, which is what I generally anticipate from half in 2x, half in cash. With that ocroft rule applied the drawdowns were much lower and the rewards higher, 7.6% annualised total return from SPY, 10.2% from SSO/VFISX. Max drawdown -51% for SPY, -34% for SSO/VFISX.

In some cases you'll miss a brief dip and recover trade when AIM might have bought some more shares during that dip, however the 'cost' of that tends to be relatively small. If you're trading 5% of stock value, 30% hold zone - perhaps around 1.5% of stock value (which might be 0.75% of portfolio value if cash was around 50%). In contrast it can save you a lot if the share price endures a progressive deep decline, when with conventional AIM you might have repeatedly cost averaged into more stock across that decline, whereas lumping in a large amount somewhere closer to the bottom would have been better.

The paper work might therefore be a simple case of managing your normal AIM paperwork, but then running a second paper copy of that when a buy trade is encountered and maintaining that/ignoring the main AIM record until that paper AIM stops indicating buy trades - at which time you revisit your main AIM record and continue on as normal (throwing the other paper AIM trade record away).

Clive.