LC, good to get your feedback on you actual executions of the Residual Buys. You proved my point. It's food for serious thought!
Just like you I did lots of manual calculations om AIM-driven investments and just like you I ran into 3 Residual Buy Signals. . .sometimes even 4! THAT experience set me to thinking: "If AIM is intended to be an Automatic Investment Management system then a means must be found to make that first buy after a price drop to include the "sum" of all the residual buys and that was the basis of my idea to modify AIM so that after a buy was executed and the price had not dropped the Residual Buy Signal was automatically zero! That made sense and if one would think the Buy Advice after a price drop was too large then there would be nothing wrong with executing a smaller buy or even to delay the buying altogether like Don Carlson proposed with his MACRO Filter. . .AIMers have argued ever since Lichello introduced his book in 1977 or so, to "add tricks and features" to AIM to make it function either more effectively or to make it more logical.
That is why I am so very surprised that this Residual Buy Signal is "overloaded with love" and that there is so much resistance to eliminate it or to deal with it formally so that newcomers to AIM can understand and deal with it right away. All these discussion that flare up on the Residual Buy can be eliminated.
In regards to the specifics to eliminate this Residual Buy System I solved that formally by setting the PC algorithm(for buying as follows:
PC2=PC1+f*Buy. . . . . . . . . . . .[1]
simply by replacing the standard 0,5 by a variable f
Then I calculated the sum of the residual buys with a mathematical formula and calculated the Buy Amount after the price had dropped as:
Buy = 1/(1-f)*(PC1-V). . . . . . . .[2]
an this is the exactly the amount if the regular AIM Value Difference
(PC-V) + sum of "unmodified Residual Buys" [3]
From this point forward one can modify equation [1] any way you like by changing the value of "f" and setting it equal to 0,5 gives you more or less the Lichello Case. The interesting thing is that after executing [1] the Buy Advice is automatically zero just as I had intended it to be.
At this point I developed Vortex AIM a little different than the basis of standard AIM by also doing this for the selling function.
What we have now with equation [1] is that the buy amount can easily be reduced IF one thinks that the Buy Signal gives too large a Buy then simply reduce the value of one "f" and the Buy would be smaller. . . up to the possibility that the Buy becomes zero! JUST THE SAME as you now do with regular AIM-tempering the buy with increasing the SAFE value:
Buy(tempered) =(PC-V)-s*V=PC-V*(1+s)
Just like now-a-days it is popular for AIMers to vary the SAFE Value to get the action they want you achieve the same by tempering the buy via the value "f" in [2]
Notice that in case f=1 you get the case Lichello tried at first and that resulted in aggressive buying so that ALL your money would have to be invested!
So, by using the variable "f" that is all one needs to do to calculate correct Buy and to calculate the next PC accordingly:
PC2=PC1 + f*Buy just as it was used to define this alternative method.
So my argument is simply this:
Use the factor "f" to advantage as a formal means to calculate the buy aggressivity as you feel comfortable with it. You do not need the SAVE and only you can suffice with the Holding Zone minimum price change and the Minimum Buy limit.
What happens then is this:
Price Change too low? Yes-----> No trade.
If Yes-----> Is Buy > Min Buy? No-----> No trade
If Yes-----> Execute Buy as advised.
Advice to trade = 0. . . .automatically
Calculate PC2 and wait till a price change occurs.
This is functionally no different than Standard AIM except that the Residual Buy signal is eliminated.
As always one can decide to ignore the advice for any logical reason that the investor may have:
a) No money to invest: Trade = 0. Buy Advice remains and increases as price drops;
b) No faith in the stock: Wait for more value decrease(filter) or bail out fast(Management Decision based on know-how);
c) Buy a smaller amount if you have not enough to buy the advised amount. This is simply a decision as a alternative to (a) but it constitutes ignoring the Advice and will result in a Reminder Advice. . .It means simply that you have not invested what you should have invested! You can invest this amount later if you have the money or you could decide to borrow this amount. Or you could decide to let the "shortage" run and hope for the best.
d) Instead of buying the advised amount you can buy more. This will result in a Reminder to buy the extra shares later, or if you have purposely bought only a part of the Advice you can safely let the "shortage" run.
e) You van decide to add Money to the Portfolio. Just like in Regular AIM you simply modify the PC by the amount of the extra shares you buy and you can also add cash without buying extra shares. This all simply amounts to purposeful Portfolio Management and does not alter the functioning of the Advice algorithm or the PC-algorithm.
For the selling you could even do the same(as I did with Vortex AIM)
Sell amount = 1/(1-k)(PC-V)
If you want the Sell to be less than the value (V-PC) then you can choose a negative value for "k" and this works the same as using Sell= (PC-V*(1+s):
1/(1-k)*(PC-V)=(PC-V*(1+s). . . V>PC
en
k=sV/(PC+(s-1))
and for s=0.1 this becomes, with for example PC1 = 1000 and V1=1200::
k= -1.5
Sell(s=0.1)=1200-1000 -0.1*200= 200 - 20 = 80
Sell(k=-1.5)= 1/1+1,5)*(1200-1000)=0,4*(200)= 80
PC2=1000-1,5*80 = 1000-120 = 880
One could select the k-value larger or smaller and select a holding zone as required. You then execute the sell or not, depending on the Holding Zone and Min. Sell just like you do now, but. . . .
If however you modify the PC as suggested, the PC would get a smaller and would create a mirror-image of the Buy Function and PC-modification. This is what AIMers do not want. They do not change the PC for a sell! This amounts to k=0 in my suggested modification and results in s=0 for the Sell. This identifies that the Sell Advice for Standard AIM and the PC Update are not functionally related and implies then that the AIM relation:
Sell=(V-PC)-sV
PC2=PC1
is an arbitrary setup, which automatically results in a Residual Sell Signal.
This arbitrary PC2=PC1 constitutes de-coupling between s and the PC up-date value and that causes a Residual Sell Signal.
At this time this would mean that in order to make the Sell Advise structure for AIM so that after a PC update would give a zero Sell Advice the PC update might be:
Sell=(SV-P). . (implies s=0 in my previous suggestion)
PC2=PC1
so that the PV would be equal to the new value!
Example
s=0,1
PC1=V1=1000
V2=1100
Sell = 1100-1000 =100
V3=1100-100 = 1000
PC2= 1000
Sell Signal(after trade)= 1000-1000=0. . .(works for any value of s)
If now one wants to temper the selling off of shares to conserve valuable shares one could decide to sell off less than the advice.
Say instead of selling off 100 you sell off 80 just as with Old AIM.
Then you get this:
Sell Advice = 100. . .(normally you would sell 100)
If however you think that in this case it is a Better option to sell only 80 or 60 or perhaps 200 then you execute the amount you think is a better choice. Suppose you sell 60 instead of 100 (because you feel strongly that the price will rise more soon):
Sell = 60
V2=1100-60=1040
PC2=1000
Sell signal after selling 60 = 1040=1000 = 40!
This is just like as for buying the modified way: You have OTHER that advised sold less, and the Reminder Sell Signal shows that: you not sold the advised amount! But now it is not a case of ignoring a good Sell Advice but having decided that selling less is a better option because you have used your knowledge of the market.
No doubt there are other ways to achieve "temerring" the sell-rate. vidence is that already all sorts of deviations from the Lichello AIM are used, including Vealies, LD-AIM, and Vortex AIM and others.
This simply means that none of the Standard Lichello AIM "features" are Holy and that AIMers are actually "sinners", when it comes to not following the original Lichello Religion.
Why then is there so much resistance to eliminating the Residual Trade Signals of AIM so that structurally the Trade Advice=0 after executing a trade that is ADVISED?. Why not sin a little more and make AIM better or at least logical? If one is not prepared to follow the advice without good reason then the Advice Generator should logically be changed to create an advice that is wanted. Lichello would have approved of that.
I am sure of that!
Newcomers to AIM would no longer have to struggle with an Advice Signal that is NOT to be executed.
Of course, I do NOT go trough all this work to convert AIMers that love their AIM as it is. I do it to hone my skills in spotting red herrings in arguments. Next I do it to increase my understanding of AIM itself and also to realize that Vortex AIM is not simply functional to give a Zero Advice after a trade but that its fundamental trading function is quite different than standard AIM. The greatest difference is its flexibility that VORTEX AIM can easily mimic Standard AIM almost to the dots on the i's, or be like a Buy & Hold System, or be an Aggressive Day Trading System.
From all this I learn a bit, each time I think of making something better!
