A.I.M. Users Bulletin Board

[aptus]

Hello Conrad,

"Now, all other things being equal (which is never the case), if we start 2 AIMs and you make bigger buys that I do early in the game and I make bigger buys that you do later in the game then (eliminating other possibilities) there are two extremes that we consider..."

That assumes that the number of buys are equal -- which probably won't be the case. AIM might make 10 buys on the way down (before it runs out of cash) while Vortex only makes 5 (the first 2 Vortex buys might be smaller than AIM's first 2, but the next 3 might be significantly larger -- then Vortex runs out of cash while AIM goes on to buy 5 more times at a lower price).

Now, as you've mentioned, this all depends on how you set the buying behaviour in vortex. So you could set its behaviour such that it performs as in your last post. However I'd counter by saying that if I thought prices would continue to decline for a long while, I'd set my Buy Resistance (and/or minimum % per trade) differently to compensate.

What it comes down to is the system that wins will depend on how the declining price behaves and the respective tuning parameters.

Either system can be set to maximize returns for a particular price pattern by tuning the appropriate configuration parameter. Vortex would tune the "multiplier" parameter and AIM would tune the Buy Resistance. But since we don't know how the price will behave, neither of us can tune the relevant parameter exactly (if we could then we would know the price pattern and would have no need for AIM or Vortex).

So you're left with two systems that depend on a parameter (it also depends on the price behaviour, but you can't control that). My question then becomes, "if you have two systems that depend on a parameter, which one do you use?"

The obvious answer is that you go with the one with which you have the most confidence and/or familiarity. In order for me to go with some other algorithm I need to see it giving me a significant advantage over what I'm currently using. If all I've done is trade one parameter setting for another one, I don't see the benefit. Furthermore since I'm familiar with the AIM method and I've backtested it and know how it works (which I haven't done for the Vortex method), it makes sense for me to stick with that method.

If we backtrack for a moment and forget about tuning parameters, then Vortex will need to supply a "general case" multiplier. AIM would use whatever BR/SR/Min%perTrade settings were chosen when initially setting up the portfolio. In that case I believe that AIM would come out ahead most of the time. I suppose the only way to verify this is to backtest both algorithm using the testing methods I alluded to in a previous post.

To conclude, I think your idea can work, however I don't believe it has any advantage over AIM in the best case and might be at a disadvantage in the worst case.

Having said all of that, however, I think people should use whatever algorithm they think is best. After all, nobody else cares as much about your money as you do. If you think Vortex is the better algorithm then you should use it.

Whew! That was a much longer note than I had intended to write.

Regards,
Mark.

http://www.automaticinvestor.com