is retired now but still kicking like a horse!
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OK Tom. . Maybe Toof can help me on this one:
My Story on Face Book on December 5th:
My niece Els Heezen said recently: "If there’s an accident waiting to happen, it will happen to me!. . .When I start to eat a bright purple blueberry desert it will instantly dump itself on my snow-white dress. . .or white pants. . .Actually it makes no difference what I wear. . .the desert will end up on it. Els said. . .her words, I swear it. . ."I am the reason that Murphy invented Murphy's Law”.
I know from where she got that affinity for Bad Luck. . .
On December 3rd I bought 500 shares in PostNL@ € 2,654. . .I found it had good potential (high volatility) for frequent +/- dynamic trading! The ANB AMRO Bank Website-Advice was a moderately strong "Buy". . . I wagered some of my meager savings:
On Dec 4th there was Front Page News, in Fat Fonts: "PostNL frequently losses packages with jewelry, even diamond shipments disappear without a trace". Law suits were reportedly being started and a Pot accused a Kettle of being the Thief. The PostNL Package Tracking System was claimed not to be worth a dime. . .People were heard to have said: "It could not "track" an Elephant on the A2 10-Lane Super Highway by Breukelen".
I feared my investment would suffer from that bad news. . .It did. . .The share price dropped 2,5% in one day!. . .Without any Good Luck to Save me the price would drop to € 1 in 40 days. . . that would be terrible! . . .That is my bad luck, and I can tell as many of such stories as Els can tell.
The "Winkelman" name must be the culprit. . .
What else can it be?
Toof, what is in the Stars for me?
December Results ?????????
Another down month. As posted earlier no trades.
Taxabe - .1%
IRA -1.6%
I suppose you mean November Results ?
Clive,
This Unit perspective as you explained it appears to be not relevant to me.
With my time dependent Capital injections and withdrawals (For ROTAC) and time dependent Buys and a Sells (For ROTAI), I calculate the Average Capital injected into the portfolio, for the Investment period. The Investment additions and withdrawals are completely arbitrary and include interest earned, trade costs and other cost factors that would apply.
On the basis of recent discussions on dividend I have corrected the formulas.
Thanks for you explanations,
Thanks Clive.
I have a much better insight on Dividend now!
Clive, on some of your other points:
When adding/reducing holdings over time it might be better to unitise the measure - as though you were running a unit trust or fund.
This one I do not understand. Could you clarify this?
For AIM, with both 'stock' and 'cash', a better measure is the combined total of the two. Measuring just the return on stock value alone (ROCAR etc.) yields somewhat distorted figures. ROCAR can sometimes look fabulous in isolation, but what matters in practice is the combined stock and cash total value. Combining both stock and cash is also easier to handle when dividends are periodically paid and added to the 'cash' holdings.
I agree that sometimes cash + equity are to be considered in the basis AIM-like fashion. . as I do in the ROTAC method. I see this being so when a cash deposit is made to a broker like in a Forex Investment. . .. In other cases it is the investors choice to consider a cash buffer as an investment. When he keeps all his cash in a savings account he can also treat his savings account as a separate investment
I tend to prefer an investment that does not need cash on its own merit. If I buy a kg of gold it does not need any cash to maintain the gold. If I buy an operating factory I need a cash buffer for paying bills and people. . .that money can not be taken out. . .in that case the Reserve is part of the factory’s operating capital.
In the Vortex Program both the ROTAC and the ROTAI Yield are calculated so one can see what the equity on its own is doing without any reference to buffer capital.
Thanks Clive, for your tireless efforts to uncloak the secrets of the financial aspects of investing. I appreciate new views but I also tenaciously tend to hold on to the way I "see the things as the are" from my perspective and in doing so I have to weed out the errors that creep in. I afress one of the points you addressed:
It might help if you opt to either monitor/measure on an accumulation basis or on an income basis. One or the other alone.
Actually I can see it both ways from the perspective as the designer of Vortex: I let the investor make up his own mind. . .I am not concerned what I want to do but I need to make sure that the features of Vortex are such that the investor can do it either way but I must provide the correct mechanism so he do the one or the other. Up to mow this was possible but the issue of dividends and the Adjusted Price was a curve ball for me.
Keep in mind that by now the structure of Vortex AIM is specifically adapted for time-based Cash Injections or Withdrawals at any time. Investors do this anyway so I have made that a feature. All the cash In-Out is simply accounted for 1) as the Reserve and 2) as time-weighted average Cash Inlay for the purpose of the simple ROI similar as is used in Standard AIM. The Start Capital (Equity + Reserve) is no longer a good base for yield calculation because the total investment is no longer a constant but fluctuates in +/- steps, just like the Equity does. For this reason I calculate the Time Averaged Capital= TAC. This time-averaged Capital is the basis of the ROTAC Yield calculation: Return Om Time Average Capital. The Portfolio Value = (Reserve + Equity), just like in Standard AIM in which the total capital put int the Portfolio is regarded as the Investment.
Equity Value is simply based on the actual share value. Price adjusted for dividend is ignored in this. I do not see how it would be relevant!
Summary
Profit =( PV – Capital Inlay)
Time weighted Investment = TAC. . . using the IRR Formula
ROTAC Yield = Profit/TAC
If a dividend is received the investor decides what to do:
1 He can leave it in his regular household account and just spend the income. As you remarked this is then accounted for separately;
2 He can enter it into the Portfolio and this increases the Reserve but it also increases the total invested capital in the same way as any other cash injections do;
3 He can enter it as equity but if he does so he has to buy a very small number of shares and pay high trade costs, so I would advise him not to do so. He could, if he wants to do that, buy a few more share in the next regular Buy. This way he uses the accumulation method and the dividend increases the Equity Value;
4 If a dividend is issued as shares then the end effect is the same as for (3)
With these procedures the Adjusted Share price is not used. The Investor can see his profit simply by inspecting the dividend yield as the total pay-out of Dividend (Case 1) separately from his Portfolio, and for Case 2,3 and 4 the yield is part of the ROTAC calculation. I see no need to do more.
The other option in Vortex AIM is to look only at the equity performance. What is the yield on the equity? A person with a saving account of $ 200000 that simply buys $ 10000 worth of Equity is not necessarily interested in setting up a Reserve. . .he is only interested in what his Equity is doing. Consider a person that buys a house as an investment. That is his Equity and the Buy Price is the Investment. The regular maintenance cost are time-spaced-investments. . . .If 5 years later an extension is added then the cost of that is a time-spaced-investments no different from other time-spaced costs. The house owner does not see the money in his savings account as an Investment in his house until he spends it on his house.
I see dynamic investing in Equity that is bought via the stock market in the same way as buying a house. Any investor has a choice to set aside a Buffer for future cost or unexpected damages or (un)expected opportunities. If he does he can consider that capital as part in his initial investment with the ROTAC method. If however the investor only wants to consider the Equity he can use the ROTAI Method: Return on Time Averaged Investment. With this method only the purchase value is treated as Investment and the Equity Value.
Profit =(Equity Value – Invested Capital)
Time weighted Investment = TAI. . . using the IRR Formula
ROTAI Yield= Profit/TAI
Now a dividend is paid out as a share issue . . .What should be done???
I see it this way: The number of shares goes up but the value per sgare goes down. Theoretically there is no change in value. The small change in share price is compensated by the amount of the dividend. So in this procedure nothing else ought to be done. . . .Correct????
I do not see what else needs to be done. Nothing is bought so the investment purchase value is not increased: the Equity is simply worth more. The dividend shows up in the Profit and in the ROTAI Yield.
If however the dividend is received as cash into any account then the investor has the option to buy shares for the amount of the dividend. If he does then the dividend must be processed in such a way that the equity value before and after tadding shares remains the same. . .Correct ????
So the way I think to do this is to treat the dividend as a simple equity purchase. No different than any other equity purchase but this action must be delayed to avoid high transaction costs for a small number of shares. This way the dividend value becomes extra equity to compensate for the share value reduction from the dividend issue. There is no need to use the Adjusted price. . . . Correct????
In regards to Back Testing historical process I have no mechanism, as yet, to automatically include dividend additions. Do I understand it correctly that if I use the Adjusted Prices, and ignore the dividend payments, that then the Yield Results automatically will reflect the additions of the dividend that would have been entered into the Portfolio if the Back Test Trades would have actually taken place in the past using the real prices?
If that is the case, then I know enough on this.
Thanks Clive for the additional explanation. I was looking at the 2011 Prices when I noted the $4 Difference on the Adjusted Close Price for SPY.
Although I can read what you have been saying on this I am not quite clear yet how this affects my two Yield calculations I am using. The way I process the Dividends at the moment in the performance calculations has been "upset" by the questions that have popped up for me lately. The financial aspects of this begins to look like “hocus-pocus” to me now
My confusion is increasing as a highly progressive function of the amount of information I dig up on it!
I will think all this over and see If I need to change anything in my Portfolio Management.
Regards,
Clive,
You Post reads like the text of an Episode of The Big Bang Theory
What I do not understand is that for Spy the Adjusted Close Price is about $4 lower than the actual Closing Price.
How can that difference be so large? For a SPY Index Price of 127 that is > 3% (June 2011 Case). . .Does this mean that the Dividend payout was then > 3% ?
Hallo TooFuzzy,
I did notice that for SPY the Closing Price on the day of the Dividend issue was about 0.2 % lower than the Closing price the day before, but maybe that means nothing. The Opening Price on the issue day may have been much higher and the deduction of the Dividend Delta Price may have been wiped out by optimistic investors, so the effect of the dividend can not be determined by looking the de Closing Price, because that price is determined by the investors.
I do the same as you do with the dividends in my SPY Demo Run: I add the money on the Reserve and let it go at that, for the ROTAC Yield Method. The extra cash is treated as a capital investment, just like the cash portion of any Starting AIM is treated as Investment. I correct for the time effect of the added cash as well to get a Time Averaged Capital (TAC). This method also corrects for Capital Addition if I add for example $ 10000 after the AIM has already been running for a while. The Yield is called ROTAC.
For the ROTAI Method I also make a dividend correction because I treat the money I receive from the dividend as being a payout from the equity and it is treated the same way as if I sell some shares. . . For the ROTAI this is a negative investment and it makes the Time Averaged Investment a bit smaller, and that makes the yield a little larger.
Thanks Tom,
I am surprised that there were 3 dividend issues in 2012 already. I only added 1 dividend issue last year I can correct for that in the Demo Run manually. . .no problem.
When we automatically download the SPY prices into Vortex we do not see the Dividend issue.. .that's why I missed 6 of the 7 dividends that were issued since January 2011!
Does one get the Dividend of SPY in cash or is the dividend issues as shares to the investor?
Inspection of the closing prices(the ones I use) before and after the Dividend Date shows there is hardly any difference in actual prices.
The way I register the dividend is simply to add the cash value to the Reserve and leave it at that! I have the option then to aquire extra shares for the Dividend Amount manually, but then I would set the trading cost at 0.
I can not take this manual method into the Back Testing procedure.
Are you saying that with back testing one ignores the dividend payments and uses only the Adjusted Closing Prices?
OK, with the Adjusted Prices being lower any Buys and Sells would be of greater share quantity. . .Is THAT the internal mechanism by which the Yield of the Portfolio becomes approximately the same as for actually executing the Dividend into the trading, using normal closing prices?
In the end it seems to me that for the actual operation of the Portfolio it makes little different which method is used for accounting for the dividend one gets, as long as it is factored in. . . Right?
Tom,
Was any dividend paid in 2012?
If it was I missed it
Hi Tom,
Are you glued to the TV watching the Presidential Election Activities tonight?
For us its starts to get interesting after Midnight. I will stay up till I know the results.
****************************************************************
I notice you have a S&P 500 Portfolio and for the 2019 period you have a 12,29 % Yield (I presume this is the Annualized Yield).
I am running a SPY Portfolio as a Vortex Demo using parameters based on analyzed Price Behavior.
The Portfolio was started in January 3, 2011.
Looking only at the 2012 details 3 Jan 2012 to 5 Nov 2012
Share price gain Annually 2012= 13,4 %
Share value gain = $ 710
Share value = 10497
Reserve gain = $ 489
Reserve Value = 11503
PV gain = 710 + 489 = $1199
PV = 22000
Trading Cost = 120
Interest gain = 237
Number of Sells = 7
Number of Buys = 4
Tom, are my figures for 2012 reasonable compared to your figures?
For this 2012 period I can not separate out the ROI nor the ROTAI Yields unless I remodel this with a new starting date @ 03-03-2012. For the full running time of 672 days since 03-01-2011 the Yields are:
ROI based on Investment of $ 20000 = 5,44 %
ROTAI based Time Averaged Investment of $ 6384 = 13,62 %
The ROTAI Profit, as I have redefined it, only looks at the gain in Share Value and the actual invested cash:
Profit = (Share Value - Invested Sum)
Yield = Profit/(Time Averaged Investment)
The yield on the Reserve and the Interest earned are only reflected in the Standard ROI on the Portfolio Value Gain
The trading costs are included as periodic investments for the ROTAI.
We have developed an Optimization Subroutine in Vortex.
A lot of discussions have been held in the past in regards to Back Testing historical stock prices AIM Type Programs.
Beyond Back Testing on single value Parameter Sets such a subroutine can be used for Parameter Set Optimization if parameter set value ranges are defined as Input. One can then choose between simple back testing or optimization.
See for more information on:
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=81151333
Regards,
Interesting new Development!
For he Vortex AIM Program(Vortex)a Back Testing & Optimization Subroutine has been developed. Currently Version 1.00 already works!
Its features are
1 Historical stock prices for any Equity are taken out of the stock prices already downloaded into the Vortex Data Bank;
2 The date-range for the Back Test and Optimization can be selected;
3 The Parameters of Vortex can be entered from a minimum to a maximum value in an Entry Matrix;
4 The simulation starts with a number of shares and automatically all the parameter values are used with a given step-size to calculate the Fund Yield Percentage for the Test Period. For simple back testing only single parameter-values that are considered important are entered. For an optimization you enter a range of parameter-values;
5 The Parameter Set for the Absolute Maximum Point(AMP) is given in an Output Matrix ;
6 The AMP Result may not be a practical operating point: It could be valid only for a very narrow range of share prices, or even only for a single price that may never return. If this is the case you can search in the numerical Output List for any Local Maximum Point(LMP). Often you will find that a local maximum will be valid for a wide range of prices so that the Maximum Yield occurs over a broad Parameter Set Range for your Investment. Such a Parameter Set gives a better operating point. The future price behavior around a broad historical optimum price range for any fund is more likely to repeat itself than for a very narrow AMP. . .such an AMP price range seldom (or never) repeats itself.
The current Subroutine does not cover all the Parameters in Vortex at this time. In the future it might use all of the following parameters:
- Initial Investment and Total Capital allocated
- Buy & Sell Hold Zones
- Buy & Sell Aggression Factors
- Minimum Trade Amount
- Trade Cost and Interest on Reserve
- Cash Burn Brake Point + Reduced Cash Burn Rate to a predefined point at Reserve Exhaustion.
The cost of this Subroutine, available as an Option, is not yet determined and depends strongly on how many parameter are to be included in the future.
Regards,
Thanks Ocroft, you have provided a useful reply here! You make good sense!
I have not used the MARCO. . . or any other filters.
I understand Don Carlson has shifted to other methods himself. He did mention to me once what he was using instead but I did not understand it and did not investigate it further.
Refards,
Adam, the use of filters to delay buying was discussed after the Ocroft Method was presented, but long before that for example the MACRO Filter of Don Carlson that was proposed many years ago has been discussed as well here. . .Conclusion then were the same then as the same now. . .if the price drops are not deep enough one misses a lot of trades and can even activate trades that creates loses.
In al the discussions on Oroft's Method I have not grasped how it is essentially different from a MACRO Filter. . .one can play with different MA's and achieve a very similar effect as Ocroft achieves. . .Delaying the AIM Buy results in an increasing Buy Advice that can be implemented after the price recovery occurs.
Hopefully we will hear more about you specific results.
Interesting Issues Karw:
You need enough data to get a stable sigma, preferably data over all economic 'climates'.
I think this would be a reasonable basis for a "design" for a case in which a Data Set exhibits a repetition to the future. One can then use the metaphor "What is good for the goose is good for the gander" J
This then would approximately apply also to an optimisation. . .if there is a near repetition of the price history the optimised parameters would also be nearly optimum for the future.
If I an interested in a short history. . .which I am now. . . then I can at least notice if the current trend more or less maintains itself. . .If it does then the sigma should be ~stable.
I don’t see how the different days would impact this? In Vortex you could start with the average price as SP,
so you are then date independent.
Suppose I started SPY on 29-05-12 at a price of $ 133. Thus the Start PC/sh = 133
If I start on 04-06-12 PC/sh = 127,44
Sigma = for this set is 5,1
HZ 1 = 5,1/(133-5,1) = 0,0399. . . .4 %
HZ 2 = 5,1/(133+5,1) = 0,037. . . . 3,7 % Total = 7,7
For the next calculation I have removed the 133 price and added a new price on at the end 146,83(previous last Data Point);145,87 <----New Data so that the Data Set has the same number of points.
Sigma has increased to 5,28
HZ 1 = 5,28/(127,44-5,28) = 0,0432. . . .4,3 %
HZ 2 = 5,28/(127,44+5,28) = 0,0398. . . .4 % Total = 8,3
You may well be right that Average Price would be a good compromise.
With the method above I move the Optimisation Data Set forward in time with the new Portfolio. . .Hoping that with each optimisation I have a better chance that I keep the optimised parameters at reasonable values.
I just optimised the set for the new Data Set and I got these Hold Zone values:
Buy HZ = 2,1 % Previously I got 4% with 133 as starting price.
Sell HZ= 2,2 % Previously I got 13% with 133 as starting price.
I do not understand fully why the Sell HZ is reduced that much from 13 % to 2,2 %. Possibly the 2,2 % result is a lower local optimum point. I should try the optimisation in the neighbourhood of Sell HZ = 13. . .Just hold on. . .I do it right now. . . .tra la la. . . tra la la. . . .Done . . .it only took 20 minutes. At 13% it is no longer the optimum
At
S HZ 6%
B HZ 0%
There is here an Optmised point with a
ROI = 106% yr
B & H ROI =48 %
4 Trades
These results are not quite consistent.
Maybe I should rethink this and just pick the high one . . .hahahahaha.
For these latest HZ sets 2,1 % and 2,2 % the simple ROI for the short run = 39%
Of SPY continues this way it looks good
On the formula with the sigma and Starting Price PC/sh I am still scratching my head.
Time to get some dinner now! It is 9:35 PM
Regards,
Karw,
I checked my sigma calculation and you are right! I must have made some mistake.
I get:
STDEV = 8,633194181 from Excel. This is approx. the same as you got.
The definition here is for a Sample of a Population.
STDEVP= 8.319154073
The definition of this is for a Complete Population
I am sort of questioning the rationale behind these formulas.
1)You start out calculating
Buy Hold Zone (Fraction) = sigma / (PC/sh + sigma)
PC/sh = Starting Price(SP) for an AIM Portfolio.
As you start buying and selling with the future prices then the SP changes, depending on which day you start your AIM. For a volatile stock you might get different Hold Zone values if you would start an AIM at different days after the Historical Data Set.
2) What is the basis for using sigma? Why not any of the other statistical functions? Why not use
Buy Hold Zone (Fraction) = 3*sigma/(PC/sh + 2*sigma)
or any other combination of the variables?
Hello Ray
I really like your suggestion of using a Dollar Amount decline for Consecutive Buy Indicators instead of using Percentage Declines as a method to slow down the Cash Burn rate.
To make sure I am understanding this correctly, please let me know if this is correct:
An investor has a stock which he purchased for $10 a share. He decides to let it decline 15% before he makes his first purchase. When the price declines to $8.50 he makes his first Buy (a decline of $1.50).
Now then, he doesn’t make his second consecutive Buy until it drops an additional $1.50, or down to $7.00 a share ($8.50 minus $1.50).
His third consecutive Buy would be around $5.50 ($7.00 minus $1.50).
Let me first point out that the method of using the
Minimum Buy Interval
Minimum Sell Interval
as is first suggested by Chuck Chakrapani in the Money Spinner and as I have outlined this on the AIM Forum See this for the Calculation Method:
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=78924095
I seen to remember that this only used for small value stocks.
Note that according to this Money Spinner Method when you start with a price of 5 the Min. Buy Price =4,17 and that is a price drop of 16,7 %.
What you are doing, starting at a Hold Zone of 15%, is on principle the same thing but when you get to the price of 5 the %-drop in price is already 27 %
Price/New price/Price Drop
10,00 / 0,85 / 0,15
8,50 / 0,82 / 0,18
7,00 / 0,79 / 0,21
5,50 / 0,73 / 0,27
4,00 / 0,63 / 0,38
2,50 / 0,40 / 0,60
This would of course be a good way of reducing the Cash Burn Rate. I think I may have mentioned before that this amounts to an exponentially increasing Holding Zone. I had this idea on the past but at the time I tried to implement that as a mathematical formula. This a lot simpler. In Vortex AIM I have not formalised this. At the moment the User enters a percentage and the program advises a Trade at that percentage. The user can easily use the above table and after the Buy at 15% drop can enter the 18% drop and after a Buy at 18% he can enter 21%. . . etc. That is a few seconds work. This way you have to work your way back up the ladder when the price starts rising.
On the Selling side he can do the same thing. It takes a bit more work to adjust the Holding Zones. This could be automated. . .sure. . .but the question is: “What do you do if you use a Share Price of 100 to start with?”. You might want to start with 15% but is it effective to use 18/21/27/38 but the likelihood that a $ 100 stock will behave like that will be rare, and then you might want to be worried if it does J. Using a less progressive drop may then be better like 15/16/18/21/24.
In the AIM Forum we have discussed such Step Ladders quite a bit with ls7550 and he seems to think that it is a good way of sequencing the trades. The Step Sizes are calculated form the Trading Range Band.
In the Money Spinner it was done with a Manual Method but it could be changed into an algorithm so that the Ladder Step Size could be made more or less aggressive. .Using the Money Spinner basic approach you could use X% instead of 10% and us Y shares in stead of 100 shares. I think I discussed that option in one of my posts.
Of course, using the Filter Method. . .Ref. Ocroft. . . to not Buy until a price reversal occurs is also a very good way to reduce the Cash Burning.
Hello Ray
I really like your suggestion of using a Dollar Amount decline for Consecutive Buy Indicators instead of using Percentage Declines as a method to slow down the Cash Burn rate.
To make sure I am understanding this correctly, please let me know if this is correct:
An investor has a stock which he purchased for $10 a share. He decides to let it decline 15% before he makes his first purchase. When the price declines to $8.50 he makes his first Buy (a decline of $1.50).
Now then, he doesn’t make his second consecutive Buy until it drops an additional $1.50, or down to $7.00 a share ($8.50 minus $1.50).
His third consecutive Buy would be around $5.50 ($7.00 minus $1.50).
Let me first point out that the method of using the
Minimum Buy Interval
Minimum Sell Interval
as is first suggested by Chuck Chakrapani in the Money Spinner and as I have outlined this on the AIM Forum See this for the Calculation Method:
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=78924095
I seen to remember that this only used for small value stocks.
Note that according to this Money Spinner Method when you start with a price of 5 the Min. Buy Price =4,17 and that is a price drop of 16,7 %.
What you are doing, starting at a Hold Zone of 15%, is on principle the same thing but when you get to the price of 5 the %-drop in price is already 27 %
Price/New price/Price Drop
10,00 / 0,85 / 0,15
8,50 / 0,82 / 0,18
7,00 / 0,79 / 0,21
5,50 / 0,73 / 0,27
4,00 / 0,63 / 0,38
2,50 / 0,40 / 0,60
This would of course be a good way of reducing the Cash Burn Rate. U think I may have mentioned before that this amount to an exponentially increasing Holding Zone. I had this idea on the past but at the time I tried to implement that as a mathematical formula. This a lot simpler. In Vortex Aim I have not formalised this. At the moment the User enters a percentage and the program advises a Trade at that percentage. The user can easily use the above table and after the Buy at 15% drop can enter the 18% drop and after a Buy at 18% he can enter 21%. . . etc. That is a few seconds work.
On the Selling side he can do the same thing. It takes a bit more work to adjust the Holding Zones. This could be automated. . .sure. . .but the question is: “What do you do if you use a Share Price of 100 to start with?”. You might want to start with 15% but is it effective to use 18/21/27/38 but the likelihood that a $ 100 stock will behave like that will be rare, and then you might want to be worried if it does J. Using a less progressive drop may then be better like 15/16/18/21/24.
In the AIM Forum we have discussed such Step Ladders quite a bit with ls7550 and he seems to think that it is a good way of sequencing the trades. The Step Sizes are calculated form the Trading Range Band.
Ref. Discussion on Hold Zones:
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=80296664
Hi Karw,
I will try to interpret his with a data Set for SPY
Your suggestion for Hold Zones are:
Sell Hold Zone % = sigma / (PC/sh - sigma)
Buy Hold Zone % = sigma / (PC/sh + sigma)
I do this for 13 months data 14 data point.
I just want to see if this is the right method:
1-8-2011 / 122,22
1-9-2011 / 113,15
3-10-2011 / 125,5
1-11-2011 / 124,99
1-12-2011 / 125,5
3-1-2012 / 131,32
1-2-2012 / 137,02
1-3-2012 / 140,81
2-4-2012 / 139,87
1-5-2012 / 131,47
1-6-2012 / 136,1
2-7-2012 / 137,71
1-8-2012 / 141,16
31-8-2012 / 141,16
STDV Full Population: sigma =18,651 <-----Is this right with your Sigma calculation?
PC = 17475 @ 1-8-2011
PC/sh= Starting Price =122,22
S Holdzone = 18,651/(122,22-18,651) =0,180 ----> 18 %
B HoldZone = 18,651/(122,22+18,651) = 0,0,13 -----> 13 %
This appears reasonable for not having any other information.
**************************************************************
If I do the same thing for my latest optimization Run and actual prices in the Spy Demo Run I get this:
Demo Run SPY 20 Data Points
29-05-12 / 133,01
04-06-12 / 127,44
08-06-12 / 132,41
15-06-12 / 134,14
19-06-12 / 135,7
26-06-12 / 131,98
03-07-12 / 137,41
06-07-12 / 135,49
12-07-12 / 133,15
17-07-12 / 135,43
25-07-12 / 133,93
03-08-12 / 139,35
13-08-12 / 140,77
16-08-12 / 141,99
24-08-12 / 141,51
30-08-12 / 140,49
05-09-12 / 140,91
06-09-12 / 143,77
14-09-12 / 147,24
18-09-12 / 146,62
STDV Full Population: sigma = 5,1
PC = 8751 @ 29-05-12
PC/sh= Starting Price =133
S Holdzone = 5,1/(133-5,1) =0,04 ----> 4 %
B HoldZone = 5,1/(133+5,1) = 0,037 -----> 3,7 %
The optimization results for this run were
Sell Hold Zone = 13 % ------ Does not agree with Sigma Method
Buy Hold Zone = 4 % ------Does agree with Sigma Method
What do you make of this?
The SPY optimisation looks at the high price of 147 which gives an indication of the rising trend at the end of the run and finds the optimum Sell Hold Zone at 13 %
In the SPY Demo I had set the B Hold Zone at 3,5% and the Sell Hold Zone at 12 %.
Hi Karw,
I will try to interpret his with a data Set for SPY
Your suggestion for Hold Zones are:
Sell Hold Zone % = sigma / (PC/sh - sigma)
Buy Hold Zone % = sigma / (PC/sh + sigma)
I do this for 13 months data 14 data point.
I just want to see if this is the right method:
1-8-2011 / 122,22
1-9-2011 / 113,15
3-10-2011 / 125,5
1-11-2011 / 124,99
1-12-2011 / 125,5
3-1-2012 / 131,32
1-2-2012 / 137,02
1-3-2012 / 140,81
2-4-2012 / 139,87
1-5-2012 / 131,47
1-6-2012 / 136,1
2-7-2012 / 137,71
1-8-2012 / 141,16
31-8-2012 / 141,16
STDV Full Population: sigma =18,651 <-----Is this right with your Sigma calculation?
PC = 17475 @ 1-8-2011
PC/sh= Starting Price =122,22
S Holdzone = 18,651/(122,22-18,651) =0,180 ----> 18 %
B HoldZone = 18,651/(122,22+18,651) = 0,0,13 -----> 13 %
This appears reasonable for not having any other information.
**************************************************************
If I do the same thing for my latest optimization Run and actual prices in the Spy Demo Run I get this:
Demo Run SPY 20 Data Points
29-05-12 / 133,01
04-06-12 / 127,44
08-06-12 / 132,41
15-06-12 / 134,14
19-06-12 / 135,7
26-06-12 / 131,98
03-07-12 / 137,41
06-07-12 / 135,49
12-07-12 / 133,15
17-07-12 / 135,43
25-07-12 / 133,93
03-08-12 / 139,35
13-08-12 / 140,77
16-08-12 / 141,99
24-08-12 / 141,51
30-08-12 / 140,49
05-09-12 / 140,91
06-09-12 / 143,77
14-09-12 / 147,24
18-09-12 / 146,62
STDV Full Population: sigma = 5,1
PC = 8751 @ 29-05-12
PC/sh= Starting Price =133
S Holdzone = 5,1/(133-5,1) =0,04 ----> 4 %
B HoldZone= 5,1/(133+5,1) = 0,037 -----> 3,7 %
The optimization results for this run were
Sell Hold Zone = 13 % ------ Does not agree with Sigma Method
Buy Hold Zone = 4 % ------Does agree with Sigma Method
What do you make of this?
The SPY optimisation looks at the high price of 147 which gives an indication of the rising trend at the end of the run and finds the optimum Sell Hold Zone at 13 %
In the SPY Demo I had set the B Hold Zone at 3,5% and the Sell Hold Zone at 12 %.
I got into this sort of investing in the early 1980-ties after reading the Money Spinner but did not take-up in that Min Trade Interval and then started reading Lichello. It was only after I discovered the Residual Buy(RB)that I wanted to get rid of it. . .not for the same reason you have though. . .My reason was more logical: "Why design a Trade Advisor Function and then have a Buy Advice again at the same price? That is silly. . .After one designs a Trade Advice then at the same price the Trade Advise=0 must come out of it. . .I am an Engineer A design must make sense! I called the RBf The Lichello Flaw
. . .Got a lot of Flack on that.
I had not really analysed the effect of the RB but it was discussed then as a too great a Cash Burn Rate(CBR) for AIM. After I created Vortex AIM simply to get Advice= 0 after every Buy, using the PC-Update to give PC=V I automatically got a Bonus with the Buy Function
Buy = )PV-V)*M ---------> M= 1/(1-f)
With f being the PC-Update Fraction instead of the 0,5 for AIM. Using the value of f as a Trade Size Controller(Trade Aggression Factor) I had no longer a need for the SAFE because I could set the trade size as I wanted using the Aggression Factor.
But the problem of the Cash Burn Rate is still always there IF the trade size are too large, but to set P=V after a Buy has the Advantage of providing a natural Brake, similar to the SAFE acting as a brake on the buying with constant Hold Zone. Using a Hold Zone of 20 % for prise of 100 the Trade Prices become 80, 64, 52, 41. . . progressively smaller in an exponential decay manner . .this is good for preserving cash for declining prices but not good when the price decline reverses. This is the point where the use of a Filter comes in. . .you wait for an reversal and invest at close to the bottom
At one point I considered using Exponent ional Trade Multiplier that would make the Trades bigger as the price reached the limit of the Trading Range. . .but this does not work for Deep Divers and the Mathematics became too complex to get it done.
Recently I abandoned creating new mathematical adaptation to Vortex on . . I now think that frequent optimisation of the parameters is the solution. . I have a good way of doing it. Beyond that if the price get out of the trading range I tend to think the filter option is to be used.
You are welcome any time Ray to explore the differences I have have created between AIM and Vortex. The more interesting thing in your approach is that you are the first to think on this like I do!
Take your time. . .
Regards
Ray, you hit the nail the head!
I find it very interesting that you have come up with the same arguments as I have done years ago for eliminating the Residual Buy, and from that thinking I came up with Vortex AIM.
By making the Portfolio Control the same as the Stock Value after each purchase this would probably eliminate any Residual Buy amount created by that new purchase. It would be almost like beginning a new AIM program with each consecutive new Buy. Regardless, the Portfolio Control amount will need to be changed in any event with any new purchase. Why not just change it to the same amount as the new Stock Value and eliminate the Residual Buy amount?
It would be almost like beginning a new AIM program with each consecutive new Buy. Regardless, the Portfolio Control amount will need to be changed in any event with any new purchase. Why not just change it to the same amount as the new Stock Value and eliminate the Residual Buy amount?
This is exactly what I have done in Vortex AIM.
PC=V after every Buy but also after every Sell. On the sell side the PC can be kept unchanged like is standard in AIM. Specifically this condition recreates a [color=r]]blue]New Start-Up[/color] after every Trade, with a different CER. . .exactly as you pointed out!
Mind you, I am not claiming that this feature makes Vortex better than AIM because the PC Update is still different, and depends on the value of the Aggression Factors. Vortex creates different trades for to the same price difference than AIM.
Hi Ray. . .Your question caught my attention.
I the past a great number of discussions 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.
See this: http://investorshub.advfn.com/boards/read_msg.aspx?message_id=79972406
I do not want to use this Forum to explain again what I did to create Vortex AIM.
Regards,
Ref Post # 35885 on AIM Users Bulletin Board.
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:
PC2=PC1 + v/(1-v)*(PC1-V)
f= Buy Aggression Factor
v= Sell Aggression Factor
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.
Thanks Karw for the additional remarks.
I have never used the PC/share. . . .Share Value or Share Quantity?
So I have no "feel" for that index. I trade around the latest Share Price. . .
I realise now = PC/N . . .N= Share Quantity
So in that sense we do the same thing.
2 - i dont use negative hold zones, in some tests it did not work well for me
I presume you mean negative SAFES. I never heard of Negative Hold Zones . . .It makes no sense.
On the Hold Zones, indeed the Min. Trade amounts would indicate the Min. Holding Zone limits would seem to be directly related to the Top en Bottom variations of the Reading Range. . .and if a Reading Range is clearly identified one could "eyeball" the appropriate values. . .For chaotic prices it would be more difficult to get the right values that way.
Rather than attempt to construct an Algorithm for either the Hold Zones or/and the Trade Aggression factors in Vortex I have decided to do it via periodic optimisation runs. I had decided that I could do that via an automatic procedure but programming for that goes over our heads. . .at least for the amount of programming time (and cost) required. . .I have decided to formalise the manual method using my Excel Program.
Frequent optimisations for relatively short price histories will give good parameter set if the optimisation results are tempered so that the future price behaviour does not have to be identical as the Optimisation Set.
Regards.
Response to a potential Vortex Customer:
Dear Sir,
Good to hear you are interested in the Vortex Dynamic Investment Program.
Allow me to introduce myself: I am the original developer of Vortex Program in Excel and Chris Kruidenier has skilfully converted it to a modern Windows program. The basis for the Methodology of the investment technique is described in my book The Vortex Method.
Let me explain the significant changes that have been introduced
over time.
1 A Real Time Dollar and Real Time Euro exchange rate. . .updated every minute. You can switch that on or off as desired;
2 Return on Investment. . .ROI was previously defined in Vortex as a Time Averaged Investment calculation called ROTAI(1). This considered strictly only the investment of the "Capital at Risk", and not the Reserve that was kept on the books. As some people define as their investment also as the Reserve. . .this results in the Simple ROI. . and does not consider the dynamic nature of the investing, so I concluded that:
A ) The simple ROI is not a good indicator of the Yield of an dynamic investment in which the invested amount of money changes over time. I have therefore introduced a Yield Function that considered a time averaged inlay capital so that the yield percentage is calculated 100% accurately in the average amount of money invested.
This is called the ROTAC Yield: Return On Time Averaged Capital. One can spread the capital injections and withdrawals over time and the ROTAC Yield is always calculated over that variable amount of money that remains invested. If you take cash out of the Portfolio this reduces the invested capital and this increases the yield over time;
B) The ROTAI Yield formula: Return on Time Averaged Investment. . . is modified recently to be more accurate than it previously was. It now only uses the money that is used for buying equity.
The Reserve that is kept available for the Portfolio is not at risk in the equity that is bought. . . This Reserve is simply allocated for buying equity in the future, IF that becomes desirable. The interest that is earned on the Reserve is added to the Reserve and this increases the yield of the Portfolio only on account of the profit on the capital. This is a fair method because normally one gets a "savings account" yield on the money in the bank. . these interest earnings are now considered in the Portfolio Profit because the Reserve is. . .in a sense. . . dedicated to the Portfolio, but not as an investment in equity purchases. Dividend however is a special case as it is sometimes issued as shares and sometimes as cash. It is however a yield on the equity in either case and is entered into the Portfolio Input manually, according to the manner in which it is received.
There you have it. In Vortex one can simply switch from looking at ROTAC Yield to ROTAI Yield at a click on a button and that provides a very accurate representation of the fundamental difference between the two yield concepts.
At the moment the variable settings for proper investing are to be determined by the investor, although there is a conservative Default Mode that gives out rather small trade recommendations. I am working on a method to set the Hold Zones and the Trade Aggression Factors to optimised values on the basis of Price behaviour of the Equity. . .for example using the Trading Limits of the equity in the recent past. These method can now be communicated to you in general via the I-Hub Forum or in private via e-mail. Automation of this may be done in the future. For the private instruction in which I will do the calculation a fee-structure is set up as it involves considerable time to do. This fee-structure has been defined on this Forum already in Post # 571 on September 25 2012
I hope this information is useful to you.
Should you have any questions on the Vortex methodologies you can put the question on my I-Hub Forum:
http://investorshub.advfn.com/boards/board.aspx?board_id=1341
Regards,
(1) This is generally defined as the Internal Rate of Return(IRR). I have used a rather informal mathematical symbolism but that in not visible to Vortex Users. I have developed the formula myself from fundamentals and which factors to include or not is bases on my personal judgement.
Informational. . .In response to the recent discussions on finding an algorithm for SAFEs for an AIM portfolio, and in relation to various discussions I have held with Mark Hing of Automatic Investor(AI)years ago on creating an Optimisation Package for Vortex AIM, I have decided that making automatic systems for determining optimised Vortex AIM Parameter Sets is too difficult a task for us at this moment. Instead I now do the optimisation manually and frequently. At some point it may be changed to an automatic procedure.
My original idea for automatic optimisation was
1 Use a Data Set not to far into the past to the present and do the optimisations for the 6 Vortex AIM variables and find the best Optimisation in the Data Field(the absolute maximum);
2 Temper the optimised parameter set somewhat so that the future price behaviour need not be identical to the price behaviour used for the optimisation. . .It never will be identical anyway;
3 When the prices change significantly from the previous behaviour Shift the Optimisation Data Set to the new data points that have developed and remove an approximately similar number of data point from the beginning of the Data Set;
4 Redo the Optimisation and use the new Parameter Set after tempering the numbers again.
5 Redo this optimisation with the Data Point Shift towards the future each time the price behaviour changes significantly.
For Vortex AIM users that are interested in doing this themselves I will provide an Optimisation Kit based on my Vortex AIM Excel Program and an Instruction Brochure. For Investors that have no time to do this themselves I provide an Optimisation Serve for the Equity of their choice. These services obviously come at a reasonable price. Detailed information:
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=79921517
Recently various discussions have been held in the AIM User Forum on calculating Hold Zones and SAFES for the AIM Method using Equity Price information.
Since Vortex AIM is in some respects quite different from Standard AIM these specific AIM settings have no real meaning for Vortex AIM.
Nevertheless I have been working on developing an algorithmic system which would calculate the Hold Zones and the Trade Aggression Factors based on Historical Equity Price Data.
At the moment Vortex has set up a manual method that is rather time-consuming but will be able to [b[optimise all the variable parameters on the Vortex program
1 The Cash Equity Ratio with which the Portfolio should be started;
2 The Buy & Sell Hold Zones. This is the Price Spread between which no trading should be done;
3 The Buy & Sell Trade Aggression Factors;
4 The Cash Burn Factor for cases that the Buy Advice is larger than the Reserve. This variable will stretch the buying into lower prices more effectively to increase yield.(*)
In all this it must be recognised that this optimisation will realise a maximised Yield for as long the historical price behaviour will approximately be repeated. The absolute parameter settings from the optimisation procedure will be “tempered” so that the settings will respond best to the approximate price behaviours of the Historical Data Set. The absolute yield figure for the portfolio will therefore be somewhat lower that was calculated in the optimisation. . .This a necessary procedure because future price behaviour will never be identical to past price behaviour.
When prices start to move significantly outside the boundaries of the Historical Data Set a new optimisation procedure must be executed with an updated data set.
Vortex AIM users will be able to purchase an Optimisation Kit for doing this optimisation themselves or they can sign up for a Optimisation Service Package.
Prices
Optimisation Kit:
1 A Vortex Excel Program prepared for the Equity that the Vortex Investor is using;
2 An Instruction Brochure for doing the optimisation.
The purchaser should have preferably identified the period for the Historical Data Set for which there is a definite Trading Range identifiable. . .if the historical data is very chaotic they the optimisation is less likely to be accurate. You can of course still buy the Optimisation Kit and get used to the procedure and use it for another equity. The Data Set can be arbitrarily changed for a different equity that shows good Trading Range behaviour.
The purchaser should provide en Excel list of the Historical Data Set.
Price = € 100 based on a 2-hour work load to prepare the Kit with the Equity prices provided by the Purchaser on an Excel File.
Should the Purchaser prefer that I get the prices myself for the chosen Equity then they must send me the exact Ticker Symbol, I will then select the proper period for the historical data Set and set the parameters intuitively for a good starting point for an optimisation (**). This extra work requires minimally 1 extra hour. To provide a margin for time overrun I charge 1,5 hour extra.
Price = € 175
Optimisation Service
The Optimisation will run over a 6-variable set of values that can cover a wide range of values. Sometime one can “hit” upon an optimises set of parameters rather quickly but in other case with larger data sets times if can take 6 hours or so. To be fair I will state that large data set that cover a long period are not to be used. I set m s fixed price.
a) Purchaser provides the Data Set no larger than weekly prices for a 6-month period.
Optimisation Price = € 200 for 1 hour Set-up and 3 hours of optimisation work. If the optimisation happens to go quickly you will receive a credit for the next Service;
b) Purchaser does not provide the Data Set but only the Ticker Symbol of the equity. I will then select the data set. Dat is ¾ hour extra:
Optimisation Price = € 275 for Service as in (a)
Prices are Net ex. Sales Tax
You must add money transfer fees to the Price.
For purchase from outside of The Netherlands no Sales Tax applies.
For purchase from the Netherlands 21 % Sales Tax must be added on the total amount. When money transfer fees are applied within The Netherlands they are subject to Sales Tax levies.(***)
Satisfaction on services guaranteed. If you have trouble with understanding what is to be done after the optimisation I help you out.
Note
My guarantee does not apply to achieving a certain yield result on you Portfolio. There are too many things that can happen over which I have no control. At best I can do is that after the optimisation I will run the a Mirror Portfolio if you send me a copy of your Vortex Portfolio File (Either Excel or Windows) and I will check out what happened and let you know what to do different if any. It could be that the prices have changed in such a way that the optimised Parameter set is no longer valid.
For ordering you can go to:
http://www.vortexcw.nl/vortex/index.html -------> Order Form
and describe the Product you want in the Information Box. These Optimisation products are not yet on The Product List.
(*) The Cash Burn Limit Factor is only present in my Vortex Excel Program. In Vortex Windows Program this works slightly diffrently and is a manual adaption if the Trade Asdvice is too large.
(**) In any optimisation procedure it is important to select a “good” starting point that will lead to the Absolute Maximum Result. Normally multiple Optimised Sets can be found and with starting with an examination of the process in the set one can select the best parameter settings to find the Optimised Parameter Set.
(***) The 21% Sales Tax applies from 1 October 2012
Hi Karw,
Interesting that you are playing with that idea of an algorithm for the SAFES. I have some questions on this.
Take the PC/share as the anchor point.
Use 1 * sigma for the deviation from the anchor point, so that is Minimum Buy or Sell plus Minimum Transaction size.
Sigma is determined by using the price time series, using the standard deviation in excel.
1 Is the anchor point the point on the x-axis at which the skewed distribution curve is at its maximum?
I am very "rusty" on statistics mathematics. Is it not so that the standard deviation only applies to the Normal curve?
2 You have applied these formulas to the AIM SAFEs, which are a measure of Braking the AIM Trade magnitude (tempering AIM’s Aggressive nature), which have a strong conceptual relation to the Vortex Aggression Factors. . .If one uses a negative SAFE is is a Trade Accelerator.
3 What if I apply your SAFE Formulas and use them for the Holding Zones? It is obvious that the function of the Hold Zone is different than for the SAFE so I would expect that the formulas would be different.
The Holding Zone is to determine at which point, or beyond it, an AIM Trade is considered effective.
How would you modify your formulas if they were to be used to Set the Hold Zones?
Of course I am assuming (for this post) here that for the concept Hold Zone there should be a fundamental definition that is to be rigorously connected to the dynamic nature of AIM Trading.
Until now I have heard and read about guidelines for the Hold Zone settings based on personal preferences. I have a gut feeling that it is difficult, if not impossible, to escape this personalization.
In the Results below for the SPY Optimisation 29-05-12 till 18-09-12 there is an obvious elimination of the small size trades between the Trading Limits.
Comparing this with the actual 3-1/2 months trading in which 7 trades were executed I have entered the actual Demo Portfolio results in red for easy comparison
Results for the optimisation /Real Demo Run
Holding Zones
HZ B = 4% / Start 5% then reduced stepwise to 1% & back to 2%
HZ S = 13% / Start at 7% then reduced stepwise to 2% & back to 3%
Trade Aggression
Buy = 0,98 /0,95
Sell =0 / 0,93
Starting conditions for the Optimisation 29-05-12
Cash = 21532 / 12693
Share V = 8751 / 8750
Reserve = 12781 12782
Trading Cost = 10.95 per trade
Interest on Reserve = 2%/yr / 2%/yr
Number of trades = 2 / 7
Trading cost = 21.90 / 76.65
Interest Earned = 5 /93.23
PV value on 18 September = 24348 /22219
Reserve = 3271 / 16087
Share Value = 21076 / 6132
Profit 2816 /779
ROI = 42,5 % /yr / 11.7 %
ROTAI = 35,3 % /yr / Not calculated
This method looks very much like the Method of Ocroft except for the Buy that occurred in the rather large Dip at a price of 127.44 (at Day 2 of the run, at which point I depleted the Reserve completely) the start, Ocroft's method might have bought on the recovery at a price of 135.7 (or he might not have bought anything at that price as the recovery % might have been too low for him) and might have bough bought at the next recovery at 147.24 . . .(or he might not have, as the recovery price was rather a small percentage again, so Ocroft might have not bought anything after the 3-1/2 month run.
If I would have eliminated the first large buy at 127.44 in line with Ocroft's method(the recovery price may not have been enough) then the Buy at the second dip would not have occurred at all and the Portfolio for these 3-1/2 months would have been a Buy & Hold one, with an ROI of only 14.4 %.
Again of course, in the real Demo I did not trade as I did in the Optimised Portfolio because I did not judge the parameters as well as I would have done if I hade dine some intermediate optimisation runs.
As it stands the SPY Portfolio realised 6,5% ROI at 18-09-12 for the total period since 03-01-2011
I have Optimised the Current SPY Demo Portfolio for the period 20-05-2102 to 18-09-2012 based on the slowly rising SPY price and low volatility. I have used the procedure below:
1) Determine the “best” Hold Zones for the current Trading Range by inspection;
2) Use the Hold Zones in (1) and then calculate the effects on a Round Robin Trading cycle by varying the Aggression Factors and also “fine tune” the Hold Zones..
I started with the Hold Zones I had set with a manual procedure to prevent too much trading at small price differeces:
HZ B= 2%
HZ S= 3%
Trade Aggression
Buy = 0,95
Sell= 0,95. . .this was considered to be correct in the basis of reaping trading profits between the Trading Limmits
I started with the CER that prevailed on 29-05-12 in the current Demo.
Results for the optimisation
Holding Zones
HZ B = 4%
HZ S = 13%
Trade Aggression
Buy = 0,98
Sell =0
These setting produces a rather nice profit of about 40 @ per year but a number of Sells were generated below the minimum Trade Amount/ Eliminating these increased the profit due to trade cost reductions. On practice these trades would not be made either.
Starting conditions for the Optimisation
Cash = 21532
Share V = 8751
Reserve = 12781
Trading Cost = 10,95 per trade
Interest on Reserve = 2%/yr
Number of trades = 2. . .Trading cost = 21,90
Interest Earned = 5
PV value on 18 September = 24348
Reserve = 3271
Share Value = 21076
Profit
ROI = 42,5 % /yr
ROTAI = 35,3 % /yr
Obviously the optimisation has zeroed in on the average rising trend that currently is present and has capitalises on a single significant Price Dip and a significant Recovery price.
Trial & error procedures with different hold zones showed that many more traded could be generated within the Trading Range but the trading cost penalised that.
Of course these optimised settings would have to be adjusted if the price patterns changed outside the trend channel the price is moving on now.
I figured as much Adam, because as I remarked earlier I could not make much out of it.
If I do something similar for Vortex AIM, which I have done for the current settings of the SPY DEMO Portfolio manually, then I have to
1) Determine the “best” Hold Zones for the current Trading Range by inspection;
2) Use the Hold Zones in (1) and then calculate the effects on a Round Robin Trading cycle by varying the Aggression Factors and also “fine tune” the Hold Zones..
In effect this means that with the Short Time Trading Range historical data I have to perform an Optimisation procedure and then the ideal parameters will drop out of that optimisation. When the average price behaviour changes that I have to repeat that procedure
I think this is better that defining a mathematical procedure for it. I will do this for SPY to compare it with the settings I have determined "manually".
Adam, I was trying to analyse your formula for the Hold Zones Spread
and could not follow the rationale for your formula
In this link I notice that you formula is different than in the previous link, which was:
Hold zone %= U-L/( (U+L)/2 ) * 100
See Post # 35841
The formula you are posting now in Post # 35843 is
Hold Zone % = (H-L)/(( H+L)/2) * 100.
Í conclude this is the correct one. . .It makes more sense.
Anyway, considering that you guys have put a lot of work in these methods to set Hold Zone based of Stock Behaviour I triggered me to do the same thing. . . and get a little “ wiser” from it. My impression is that the procedure is still quite arbitrary and uses experience if the past rather than a hard algorithm in which only externals information is used.
My thought was to set the hold zones and the trading aggression but I do not think it is an easy job to d. . .I an just picking brains at the moment.
Right, I got that more or less Daisy42 buy I thought you might have a formula for arriving at the numbers.
The idea intrigued me. . .I have started to think doing something like that on account of your message and thought maybe I can pick a brain or two
See Technical Discussion on AIM Users Bulletin Board on simplification of Standard AIM towards the form of Vortex AIM
Buy = (PC-V)*Mb
Sell =(V-PC)*Ms
The PC-Corrector would remain applicable for only after a Buy, as it is now for AIM.
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=79695183
Adam, your Hold Zone explanation needs some explanation
Hold zone %= U-L/( (U+L)/2 ) * 100 ...........A
Here you have two variables U and L which you can set independently and that gives you a third variable which only defines the relation between the two inputs. How do you select U and L rigidly from Equity information?
What is your definition of X= Hold zone % when U and L are ready chosen?
in other words I work out the mean of U and L and work out the Hold zone percent ????? of this mean.
Generally I want this to be 20% for ETFs, CEF, and mutual funds and for non volatile stocks. And close to 30% for volatile stocks.
Do you mean here that X = 20% for non-volatile stocks and X=30% for volatile stocks? You can still find an infinite number of numbers for U and L to get X as you wish it:
U= 100% then L/( (U+L)/2 ) * 100 = 80 or 70
L/(100+L)= 0,8. . . .L=80+0,8L. . . . .0,2L=80 . . .L= 80*5 =400
So, here the Lower Hold Zone = 400% below the Starting Point . . .This would mean negative stock prices
Obviously you have in mind some Upper limit for U and a lower limit for L . . .How do you arrive at that specifically?
And if you SET U and L at some arbitrary values then X is no longer 20% or 30% but some unknown number that falls out of Equation A
In closing you give an example with SAFE = 5% with, I presume. . .X = 20%!
Are you each time calculating al these numbers to get a match for the U and L AND X=20, based on an arbitrary SAFE = 5%. ? . .Why not a SAFE of 3% or 11% or 7% ?
For example in one of my stocks my Buy Safe is 30% and my Sell Safe is -10%. (1)
From this I gather you mean that X = U+L = 20! Right?
This would mean that the Trading Dead Zone = 40% from any particular Starting Point Stock Price, and then after that, each time from the Price at which a previous trade is executed... Right?
The question now is: "What do you call volatile?"
You have for a volatile equity X= 30. . .This means one sort of volatility but that is too simple. . . An equity2 can be twice as volatile as an equity1. . .would you then set X=60 perhaps? Would the value of X somehow depend on the Trading Range Spread? I would think that would be a good idea.
(1) A negative Sell SAFE. . .Interesting. . Is this not very similar to a Sell Function of
Sell = (V-PC) +0,1V = (V-PC)*Ms . . . with M= ((1-S)*V-PV)/(V-PC) . . .and S= -0,1. . . .?
By using a negative SAFE of 0,1 you in fact increase the Sell Amount by 0,2*V !
Using a negative SAFE of 0,2 you increase the Sell Amount by 0,4*V
Likewise one can use a negative Buy Safe and you would increase the Buy Amount in a similar manner:
Buy = (PC-V)* Mb
In essence from what I have read on the AIM Forum over the years there have been many suggestions to change the values of the Buy SAFE and the Sell SAFE in a rather arbitrary way, all based on particular personal responses to hoe the equity is behaving and othet market information, and with a rather wide range of values I might add.
Would it not be simpler to modify Standard AIM to this form:
Buy = (PC-V)*Mb
Sell= (V-PC)*Ms
and use the PC-Corrector in the same way as is done now?
A meaningful value for M, as brake or accelerator, as a fraction of the Price Difference =(PC-V) is much easier to comprehend than a reduction or multiplication factor on the Equity Value alone.
In effect nothing will be changed in the AIM functioning, except that the Buy and the Sell can be increases or decreases in a straight forward and meaningful way, instead of using the rather “fuzzy” SAFE as a fraction of the Equity Value.
With this modification even the controversial Lichello Feature of the Residual Buy would remain as it is.
If M=1 is too aggressive then one can simply use M= 0,97 or M= 0,85 and in order to increase the Trade Size for low volatility stocks M=2 . . .or even M=4 can be used!
The SAFE may even be renamed as Trading Aggression Factor . . .TAF
On the AIM bulletin Board I have placed an interesting discussion on making an algorithm for finding the best parameter settings for:
Holding Zones
Aggression Factors
in response to what daisy42 has done for the Lichello AIM.
In response this I have proposed, to start with, that to prevent setting the trading parameters must be set in Vortex AIM so that one incurs no losses on up-down round-robin trading cycles, within a Trading Range.
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