A.I.M. Users Bulletin Board

[ls7550]

To reiterate http://investorshub.advfn.com/boards/read_msg.aspx?message_id=41255794

Two things can happen after a rebalance, either the stock that was reduced out of continues its upward trend (trend follows), or it mean reverts and declines. When the trend continues then not having rebalanced is better than having rebalanced.

When after a rebalance is made the stock mean-reverts, then having rebalanced is better than not having rebalanced.

Generally there's equal chance of either event, so overall average rebalance benefit might be considered as zero. An alternative way to manage rebalancing is that when it comes to the rebalance point and a decision has to be made to either rebalance or not, take the middle ground and rebalance half the amount. This way, either way the subsequent price motion, you're half right, half wrong.

One option might therefore be to take only half the indicated Ladder trade amounts at each successive same direction trade, queue up those collective halves and then fully realign to the amount Ladder indicated when the first reverse trade occurred.

Another option might be to use a technical indicator such as Williams%R, and restrict sell trades to only be made at W%R of 0..20 levels and only allow buy trades at W%R of 80..100 levels (more commonly a pair of indicators are used to confirm trade points).

Both of these would have a somewhat similar effect as the exponential trade trade you describe.

If I recall correctly I believe Don had/has a preference for MACD as the indicator.

In my experience overall however I prefer to just stick with the simpler approach and trade each and every step as I've never been able to identify a consistently better alternative.

A benefit of the Ladder is that gaping works in your favour, unlike stop-losses where gaping works against you. More often therefore I prefer the manual approach over that of using limit orders.