Hi Ray. . .Your question caught my attention. I the past a great number of discussion have been held in this. I was the one that originally found the Residual Buy very illogical. . . and coined the term “The Lichello Flaw”. In the meantime I no longer call it a flaw and agree that it is feature.
I have specifically created Vortex AIM to get rid of the Residual Buy and created the following method to do so. . .it appears exactly what you have in mind:
PC2 = PC1 + f*Buy
And from this I formalised the analysis andI caluclated the value of f to make the Buy to Include the Residual Buy. All he time I had in mind simply to modify AIM a bit, not really intending to createa comopletely different method. . .For example I had no intention right-a-way to update the PC after a Sell.
The analysis showed that the Buy contained the f-factor and became
Buy =(PC1-V)* 1/(1-f) = (PC1-V)*Mb. . . Mb = Multiplication Factor for the Buy
and so the PC Update modification became
PC2=PC1 + f*(PC1-V)/(1-f)
PC2=PC1 + f/(1-f)*(PC1-V)------> This results in PC = V2
And the Residual buy is gone!
Buy = (PC1-V1)*Mb = 0
Having found this result I liked it so much that I have also introduced that format also for the Selling, although for the selling the rationale behind it is simply to create a Sell Multiplication factor
Sell = (PC1-V)*Ms. . . .Ms = 1/(1-v)
and the PC Update formula becomes. . .of you want to do so:
Using f=v= 0 gives the Default Option. . .(Standard Vortex AIM)
These are very conservative aggression values resulting in Buy amounts much smaller than for Standard AIM because the PC remains the same after a Buy. See Note (1)
For f> 0 and v>0 the trade amounts grow strongly and one can select the trade aggression as is desired so that the trade amount are large. . .for example for Low Volatility equity.
The is the Vortex Method
(1) Suppose you use the following Aggression factors:
f= 0,6 v=0 The Buy would become (PC1-V)* 1/(1-0,6) = (PC1 – V)* 2.5 1)This a rather aggressive Buying 2)This gives an almost identical Sell performance as AIM. . .No PC Update after a Sell.
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