Thanks Allen, Re: Zig Zag analysis...............
Please remember that the zigs and the zags represent a Minimum of whatever percentage you've chosen. So, if you are using 20% at the beginning of a time frame, if the price never declines more than 19% during that time, the line will only go "up", no zags.
AIM, however won't be tradeless. It will be trading (selling) along the way as the price/share rises. Each time it sells, it makes it easier to buy back shares. So, maybe initially the Buy/Sell range is $20 to $24. A sale occurs at $24 and the new range becomes $21 to $25.20, etc. Eventually the last sale might be in the $30s with a buy-back in the high $20s after several sequential sales.
So, on Stockcharts you only see when the reversed range is at least 20% or whatever you've selected. It can be significantly larger than 20% as you've observed, but is 'at least' that large.
The amount you choose also approximates the gross gain in a round trip from a buy to a sell. So, if you want a 20% round trip gain, using total SAFE (buy plus sell) plus 2x the trade percentage equal to 20, you will be very close.
Now here's where it gets interesting. Let's say Zig Zag shows you have 3 round trips total over 3 years. We'll assume this is at 25% ZZ as an example. Each time the $$$ have been recycled, they've brought along with them a 25% gain. If we decide we want more activity, we could drop the ZZ to 20% and see what would happen. Let's say that at 20% Zig Zag it shows we would have had 4 round trips. That's a 33% improvement in the number of times we've recycled the cash. However, we've also just cut our gross profit from 25% to 20% per round trip. So, we've given up 1/5th of the gain per round trip but increased the number of round trips by 1/3. It would appear, in this example through backtesting, that it would be wise to set the Total ZZ to 20% instead of 25%. This would equate to total SAFE of 10% plus 5% buy and 5% sell minimums.
History doesn't always replay exactly, but you can see where this sort of test is instructive. Other things I set in StockCharts I attempt to get the Zigs and the Zags to correlate with the extremes of the technical components. I know the Zigs and Zags will align with AIM's selling and buying, so if the technical components also align, it makes those AIM trade signals all the more believable. Also, we learn that the upside of more trades (profit opportunities) has a cost in round trip profits. It's possible to increase the number of trades dramatically with smaller and smaller ZZ, but then we also don't make much money per round trip. The "best" point is where the total profits over a time frame are the largest. (highest gains over time being the highest number of round trips times the round trip profit)
Hope this helps. Just remember the reversals don't just show the Zig Zag percent you've chosen. They can be much larger percentage moves, but just not any smaller.
AI
