Old No.7
Ref. 50% cash Burn Limit
First there is no Rule that only once per month should be updated. AIMers use variety of update schemes. I update every day sometimes and sometimes I don’t stick to that, and do not update for a week. My rule is I update when I think about updating, but that is usually less than 1 month.
That 50% Cash Burn is an Old Rule, already discussed on various occasions in the past. I have a Vortex AIM variant that does partly what you suggest. Apart from the version I have that does not limit negative cash (The TurboVest Version)I have the Vortex AIM Cash Limiter (VACL)
1 If the recommended trade is smaller than the available cash the trade is executed if it is larger than the Minimum Trade;
2 If the recommended trade is larger than the available cash then the trade is executed as a fraction of the Reserve Value(Fractional Trade),
3 If the Fractional Trade is less than the Minimum Trade Value then nothing is dome till the price hits a good trading point near the bottom of the Dip and then all the Reserve is invested:
Trade= X*Reserve
with X= variable factor between 0 and 1 that I set by sticking my thumb in the air to feel the Trade Wind. . .when set at 0,5 VACL recommends executing a trade at 50% of the Reserve.
This works fine. When there is lots of cash the recommended trades are executed, and when the stock price keeps declining the Cash Burn Rate is reduced. On top of that I monitor the situation and when I think it is opportune to do so I will not execute the trade and let the stock dive deeper for trading at a lower price(like in (3) above, or I Bail Out if I the stock is no longer worth owning.
I have tested this and when the stock dives deep it gives better yield upon recovery than if X=1.0 . . .On the other hand when the stock does not have a very wide trading range the factor of 1.0 is optimum. . .in practise this means that the last stepwise investment is on the average relatively close to the bottom price. And no cash is left when recovery sets in.
