AI
Tuesday, June 03, 2003 2:21:59 PM
Hi I, I'm sorry, I didn't understand the question first time. The "bad" trades aren't bad in that they would have been profitable on a LIFO basis. The only thing "bad" about them is that they occurred on the "wrong" side of the Moving Average line.
For instance, if the last SALE was at $50, and the next BUY was at $42, but above the 26 week moving average, then I called it a "bad" trade. If the same exact trades took place, but the moving average had time to get above $42, then it changed to a "good" trade.
The same applied to selling. If a deep sharp decline occurred where AIM did a substantial bit of buying that's fine. However, if the price pops back up and AIM wants to sell below the 26 week MA, then that sell would be a "bad" one. Nothing wrong with it, just that the statistics said it was less efficient than it could have been.
So "bad" is a relative term. When we shrink the SAFE and Min. values very low in AIM, we see that there are more and more of these trades that are less than "efficient" relative to the 26 week moving average. We know there's a breaking point where we trade more hecticly but achieve less total profit. This is a way to help see how this can occur.
At http://www.stockcharts.com you can plug in your favorite equity, change the graph to display Weekly info, put in a 26 week Moving Average and a Zig Zag of 30 and it will show you an approximation of how many round trips you might have seen over about a three year period. Most likely there will be very few peaks below the 26 Week MA. There should also be very few valleys above it. Next, reduce the ZZ value to 20 and check again. There should be lots more zigs and zags, but how many of they still fall on the "correct" side of the MA? Then try 15, etc.
As discussed here, there's no particular magic to the 26 week MA. It's just that AIM "by the book" with 10% SAFE for both buying or selling (20% total SAFE) and a 5% minimum trade size will only rarely give us trades on the "wrong" side of the 26 week MA. Here's a three year history from my own account showing the 26 week MA and the AIM designated trades along the way:
and
Note all the Sell orders are above the MA and all the Buy orders are below. This is AIM "efficiency" with "by the book" settings.
Best regards, Tom
For instance, if the last SALE was at $50, and the next BUY was at $42, but above the 26 week moving average, then I called it a "bad" trade. If the same exact trades took place, but the moving average had time to get above $42, then it changed to a "good" trade.
The same applied to selling. If a deep sharp decline occurred where AIM did a substantial bit of buying that's fine. However, if the price pops back up and AIM wants to sell below the 26 week MA, then that sell would be a "bad" one. Nothing wrong with it, just that the statistics said it was less efficient than it could have been.
So "bad" is a relative term. When we shrink the SAFE and Min. values very low in AIM, we see that there are more and more of these trades that are less than "efficient" relative to the 26 week moving average. We know there's a breaking point where we trade more hecticly but achieve less total profit. This is a way to help see how this can occur.
At http://www.stockcharts.com you can plug in your favorite equity, change the graph to display Weekly info, put in a 26 week Moving Average and a Zig Zag of 30 and it will show you an approximation of how many round trips you might have seen over about a three year period. Most likely there will be very few peaks below the 26 Week MA. There should also be very few valleys above it. Next, reduce the ZZ value to 20 and check again. There should be lots more zigs and zags, but how many of they still fall on the "correct" side of the MA? Then try 15, etc.
As discussed here, there's no particular magic to the 26 week MA. It's just that AIM "by the book" with 10% SAFE for both buying or selling (20% total SAFE) and a 5% minimum trade size will only rarely give us trades on the "wrong" side of the 26 week MA. Here's a three year history from my own account showing the 26 week MA and the AIM designated trades along the way:
and
Note all the Sell orders are above the MA and all the Buy orders are below. This is AIM "efficiency" with "by the book" settings.
Best regards, Tom
Port Washington, WI 53074
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