Hi Itp42,
Just generally the difference is that in Vortex there is 1) no requirement for a constant Dollar Value Trading, which has been the Spring Plank for the AIM concept(as far I know it from the AIM hisyory)and 2) In Vortex there is complete freedom to weigh the Buying & Selling "symmetrically" or to let the program be biased for selling(retirement income mode) or let it be biased for adding extra capital during the low price intervals(this would require increasing the Reserve of the portfolio during the price dips).
But it may be that this is not related to your question, just an explanation as to Vortex's possibilities and its operation. Of course, I recognise that any Investor can do the same thing at any time as I have just mentioned, but I have provided the means to do that automatically so that the investor can plan the basic functioning of the program.
As to your example:
I will try to grasp it in order to answer your question with the Vortex Model as you appear to think that it may be like Vortex investing. I ignore for the moment the Reserve Value as that is not really a relevant part of investing unless one has a definite limit on the maximum amount of cash he can invest, and then the cash is a boundary condition not a function of the algorithm.
Initial investment 100000
(Rv=Reference Value. This is the same as PC . . .(I do not really like the term Portfolio Control):
V1=100000
Rw1= 100000
Trade = (Rv - V2)*M
Rv2=Rv1 + f/(1-f)*Trade
"Trade" is Positive(Buy) or negative(Sell)
M= 1/(1-f) and the f is the trade aggression factor. One can use fs for selling and fb for skewed trading
The result of this is that when the advised trade is executed the new Rv is equal to the new Value as a general feature no matter how large or how small "M" is. This must be the clue to see that the constant value concept is not applicable here because “M” is not generally the same for buying and selling
Lets set M=1. . .T(f=0)
Trade = (Rv1-V2)
Rv2=Rv1 + 0*(Rv1-V2) = Rv1
V3=V2 + (Rv1-V2) = Rv1
!!!!
The interesting thing here is that in this case with the neutral setting of M=1 for the buying and the selling maintains a consent investment value, which is the core of this type investing. . .the idea is to maintain the base form which the portfolio can grow.
If the price has risen the excess value is stored as Reserve.
If the price has dropped the deficiency value is added from the Reserve.
In this case the equity value remains constant no matter what happens with the price.
So, in that regards to are correct: Vortex AIM with M=1 is a Constant Value AIM Program.
Now we do this extreme example:
fs=0.2-----> Ms =1/(1-0,2) = 1.25
fb=0.8-----> Mb =1/(1-0,8) = 5.00
Rv-Updating factor for selling = 0,2*1,25 = 0,25
Rv-Updating factor for buying = 0,8*5= 4.00
Let the price change 10% downwards
Trade =5*(100000-90000)= 50000. . . .From the Reserve
Rv2=100000 + 0,8*50000 = 140000
V3=V2+ Trade = 90000+50000 =140000. . .New Equity value= Rv Value
Trade Advice after Trading is done = (Rv2-V3)= 0 !
Now you can see that the equity has risen to 140000 and now it is not a Constant Value program.
For selling at a 10% price rise the trading would be much less aggressive. The Sell would be 10000*1,25 = 12500 instead of the 50000 for the buying. The new Rv would again be equal to the new value: Rv2 = V3 =(100000-12500) = 87500 and the Trade Advice would be 0 again.
If the recommended Trade is not executed then (Rv2-V3) is not 0 and the Residual would be "carried over" into the next Trade Advice Calculation. . .increasing the trade.
The lower or higher price of the equity is automatically processed "behind the scene" in the calculation of the number of shares to buy or to sell. . .it does not enter in the Algorithm unless you represent the equity Value as a function of Share Price.
I hope this answers your question.
PS:
I might add that the principle for the updating the Rv for the buying is very similar as in Standard AIM
PC2=PC1 + a*Buy
For Standard AIM a=0,5 and for selling the update is not done.
For Vortex AIm it is
Rv2=Rv1 + f*Trade
With f being the variable aggression factor AND the updating is done for the selling as well.
For
