Thoughts on Ocroft's delayed buying mechanism:
I was intrigued by Ocroft's delayed buying mechanism and other people's input as well. I wanted to shared some thoughts. But being a relatively new AIM'er, I might be off in some of my remarks. Feedback is highly appreciated.
I did some back-testing and found the method to be quite interesting to say the least (h/t Ocroft). It is a creative way to identify a trend reversal using the AIM method and save the cash till then. I found the results to be excellent in some cases and satisfactory more often than not. I am definitely going to try it at some point.
However, I have some reservations. I apologize if these were already discussed in other threads.
- The delayed method limits my choice of stocks. The only stocks I can start a position in are are those that have corrected from a recent top, enough for a traditional AIM (aka by the book, or BTB) to initiate a series of buy signals (one or more), followed by a "No Action" signal. This can make me miss potential upside and dividends on many stocks that I'm interested in. I also won't be able to benefit from stocks that take off from here.
- Except for deep divers, the delayed method may not release cash fast enough. To illustrate, assume I wanted to start a $20,000 AIM machine for stock OZM back in Dec'13 when the price was $14.80, which is when the recent downtrend started. With the delayed method, I would've made a real purchase of 82 shares at $13.29 in May'14 for a total of $1,079. In my situation, that is not near enough committed capital at a given point. I need to find a good use of the remaining ~$19,000!
This got me thinking that perhaps one should consider running twice or even three times the amount of AIM programs s/he would normally run, making me harder to track + more expenses, possibly more potential taxes.
- Tough to back-test for a single stock over several cycles. The challenge is that after selling all stock for a decent profit (say for +30% profit on ACB), one has to a) sit on cash for a while if the stock continued its climb, waiting for a new downtrend to start, or b) look for another stock.
- Another challenge I found while back-testing is that a BTB AIM can run out of cash too fast on a deep-diver. In this case, how does one quantify a trend reversal. The PC won't go up (no buy made due to no cash), yet the stock could still be in the Buy zone. Do you buy on the first uptick of the price even though it is still in the BTB buy zone? One may have to rely on technical indicators (like the 20 or 50 day MA) or MACD.
