Hi Conrad, I think I know what ocroft is doing.
Step 1 is stock selection, ocroft only uses A+ rated Standard & Poor's stocks. The next step is to determine how many shares to buy. He uses AIM for that.
Example: stock XYZ looks like it may be a good stock to buy at $4. But how many shares to buy? You have a total of $10,000 to invest, should you invest all the $10,000, or half, or some number in between? My understanding is that ocroft looks at the recent price history to help make this decision.
Lets say the stock has this history, last peak was $10, it then went to $8 then to $5 and then to $4. I have only a old AIM spreadsheet that uses a 50:50 ratio starting ratio, so lets use it.
At $10 buy 500 shares.
At $8 buy 75 more shares
At $5 buy 428 more shares
aT $4 buy 489 more shares.
Total shares are 1492, PC has gone from $5000 to $7348. He has not actually bought any of these shares yet but if he had it would have cost him roughly $9,695 dollars for a average cost of $6.498 a share.
Next month the stock price goes up to $5 and PC stays the same, now is the time to make the initial buy. He needs to buy 1492 shares at $5 a share, it cost him $7460, and he has a average cost of $5 a share. He has $2540 dollars in cash to use if the stock price drops lower.
On the sell side he has made the decision to sell all shares at once. The price goes to $8 he waits the price goes to $10 he waits. The price goes back down to $8, he sells all 1492 shares for $11,936. $11,936 minus $7460 equals $4,476 dollars profit.
The old AIM program is showing a profit of $2,692 at this point in time.
That is my understanding of what ocroft is doing at this time.
Come see me at Systematic Investing group #board-966 lets talk formula plans.
