New AIM Variant:
In various discussions on AIMing there has been a lot of talk about conserving cash if the stock is a deep diver. As a result of my analysis of the 2MC Method, and the discussions with Don Carson on an AIM variant to conserve cash for deep divers, I started thinking about this problem some more. I have considered several retardation schemes for the VORTEX Method and as this subject fascinates me I dug a little into my memory of what I had dome before.
I believe I have a simple answer with an new AIM Variant(This method is not applicable to VORTEX):
1 Basis = Lichello By The Book
2 Close the Book
3 Set Buy=Sell Resistance at 10%(Can be anything else too and unequal)
4 Define SB=SAFE(Buy)=Fraction of Stock Depreciation that one encounters
5 Define SA=SAFE(Sell)=Fraction of Stock Appreciation that one encounters
Ready to Go
Explanation
The Resistance is nothing but for defining the Holding Zone relative to any situation after a buy or a sell.
The Safe's are now Floating Safe's. As the stock drops say 10% then the SAFE is identical as the Lichello SAFE. This gives identical performance as Lichello BTB.
As the stock rises say 10% then the SAFE is identical as the Lichello SAFE. This gives identical performance as Lichello BTB.
If the stock drops 20% then the Buy SAFE=SB = O,2 and if the price rises 25% then the Sell SAFE=SA= 0,25. Etc.
An example for a deep diver, starting at:
Investment= 20000
CER= 50/50; Equity = 10000
With 3 consecutive price drops of 20% each, resulting in dive of 48,2% of initial value, results in a significant retarded buy-strategy Relative to the Lichello AIM. The end-results using the identical algorithms as for Lichello and the Retard AIM are as follows(No Costs):
PV Lichel.= 14187; PC(end)=13438(usual update with 1/2 Buy)
V=11062
C=3125
PV Retard=14549; PC(end)=12651(usual update with 1/2 Buy)
V=9851
C=4698
With an almost 50% price drop the Retard AIM has substantially more cash left over and has a little higher total value. This is due to the more efficient use of the cash. This conservation process is quite obvious when you observe the initial Buy(values, not shares):
Buy 1 Retard= 400; Buy 2 = 2136; Buy 3= 2766
Buy 1 Lichel.= 1200; Buy 2= 2504; Buy 3= 3171
Buy Ratio 1= 3; Buy Ratio 2= 1,17; Buy Ratio 3= 1,14
With a 10% drop, both systems react identically, and buying each time at the 10% SAFE they remain identical. If the Buy is retarded to below the 10% Resistance to at 20% drop, then the Retard AIM buys only a very little initially and the Lichello AIM buys aggressively(3:1). This pattern changes as the dive goes deeper but the Retard AIM continues buying in a retarded manner relative to the Lichello AIM. This process can continue say about one more step and then Lichello runs approximately out of cash while Retard AIM can probably Buy two more times up to a price bottom at about 33%. Beautiful for a Crash.
I would predict a very similar effect on a rising price: Initially Retard AIM would Retard the sell-off and then the sell-off will stop with the Retard AIM having more stock left over at a higher price.
Maybe the name Retard AIM would better be Floating Safe AIM.
Is this an interesting option or not? I would be interested to find out how this would work after several up/down cycles. This Test Case started out with PC=Stock Value. After a number of cycles the PC value will continue to rise and never be PC=V again. This might alter the Buy Ratio's in the next down cycle significantly.
Any takers to test this Floating Safe AIM to destruction?
A serious problem here is that for stock price variations up to the point that Lichello runs out of cash, the Lichello method is better as it has invested all cash while the Floating AIM is still(hoping) for more price dips.
This dilemma, it would appear to me, hits all AIM methods that conserve cash for a deep dive. If the deep dive does not develop the investment has not been efficient. I believe that in order to eliminate this dilemma a compromise can be used: Use an aggressive form of AIM for the normal Trading Range in which a deep dive scenario is not likely. Then if the price dips strongly apply a Buy Stop. If you have good reason to fear a deep dive then bail out. If the stock recovers you can step in again and ride to the top if the stock moves above an identifiable Trading Range, then apply a Sell Stop, riding the profit wave on the seat of your pants and selling if you think the ride has been enough fun. Try to avoid a sudden dip. Secure the profits(or most of them in an AIM Way).
Conrad
AI
