Split Portfolio Control
I have come up with a modification to AIM that I wanted to throw out for discussion. My free membership to InvestorsHub does not allow me to search so if someone has already proposed something along the lines of what I describe then I apologize.
The concept involves splitting the Portfolio Control into three entities: 1) the Core Portfolio Control, 2) the Buy Portfolio Control, and 3) the Sell Portfolio Control. The advantage to doing this is that it allows one to use buy side Vealies and to unwind the increased value of Portfolio Control due to Vealies on the sell side. Buy decisions are made with the Buy Portfolio Control and sell decisions are made with the Sell Portfolio Control. However, changes to these portfolio control values will eventually revert back to the Core Portfolio Control. Thus, Vealies can be used based on the prescribed cash reserve but the AIM engine will eventually revert back to the standard Lichello algortihm.
It works like this. At the start of a new AIM portfolio, all three portfolio control values are the same. If no Vealies are used then thay stay the same and it is just conventional AIM. Now assume that the stock value goes up and a sell would be recommended but the cash reserve value is more than the cash reserve indicator (vWave for example). This would trigger a Sell Vealie. In this case, the Sell Portfolio Control is increased per the Vealie but the Core and Buy Portfolio Controls remain unchanged. The advantage to this is that if there is a price reversal after the Vealie, a buy will not be triggered on the elevated portfolio control as that decision would be based on the lower Buy Portfolio Control. This would prevent prematurely buying stock based on an elevated portfolio control value. Furthermore, the Sell Portfolio Control can be decreased when sells finally do occur. If there is a price reversal from a top then the lowering of the Sell Portfolio Control with each sell would allow for more sells if the price zig zags a bit on the way down. The lowering of the Sell Portfolio Control would cease once it returns to the value of the Core Portfolio Control. In any event, the Sell Portfolio Control would reset to the Core Portfolio Control once the stock value is less than the Core Portfolio Control, thus resetting the algorithm to standard AIM.
A simlar scenario would play out on the buy side. If a buy would be triggered but the cash reserve is less than the indicator reserve level then a Buy Vealie is used. This would decrease the Buy Portfolio Control, leaving the Core and Sell Portfolio Controls alone. When a buy finally does occur, the Buy Portfolio Control is increased. In addition, the Core Portfolio Control is increased as per normal AIM. Once the stock value gets above the Core Portfolio Control the Buy Portfolio Control would be reset to be equal to the Core Portfolio Control, thus returning back to the standard AIM algorithm.
In summary, the Buy and Sell Portfolio Controls diverge from the Core Portfolio Control based on Buy/Sell Vealies but will always return to the Core Portfolio Control value. This allows the AIM system to hold on to stock a little longer on an uptrend without the risk of buying too soon on a reversal. It also allows one to regulate cash burn in a downtrend.
I hope I have explained the idea well enough.
