The Darvas Method

[Vibr8gKiwi]

Not only is this Darvas Method quite different than AIM, it is almost the exact OPPOSITE of AIM. Darvas buys strength, and adds when the stock moves in his favor and sells when the stock drops. AIM does the opposite and sells on strength and buys on weakness. They are complete opposite strats and make money in completely opposite ways. They also have opposite flaws and advantages.

AIM makes money off stock volatility--it sells off on strength and hopes to buy in again lower later. As a stock wanders up and down AIM buys dips and sells rallies making small consistent profits over and over. Its flaws are if a stock trends up, it sells off it shares and you miss the move. If a stock trends to the moon, AIM has sold out of it. If a stock trends down, AIM buys more and more, increasing risk. If a stock trends to 0, AIM has bought in massively and lost it all. AIM also, by buying weakness and selling strength, tends to "lock onto losers" shifting more and more of your money into weak stocks while selling out of your strong stocks. Obviously AIM likes wandering stocks and can buy and sell on waves to generate many small profits, but if it finds an Enron, it takes you to the poor house.

DM makes money by sticking to up trends and cutting losers short. Stocks wander more than they trend so DM is going to be stopped out a lot more often than not. However the few winners it gets make up for the losses because it adds to them and rides them as far as the trend goes. If a stock trends down it doesn't care, it's out of it. If a stock wanders it's out of it. If a stock trends up, it rides it making up for the many small losses it had until it found the winner. DM tends to “lock onto winners” because it sells losers and puts more into winners. It can make many small losses if it doesn’t find uptrenders, and if you hit enough of those losses in a row that can hurt, but if it finds a Microsoft, it makes you rich (the exact opposite of AIM). It also isn’t hurt when it finds an Enron because it sells out of it.

Some people think AIM (which is a type of Scale Trading) is one of the worst trading techniques, while its opposite (like the DM technique) is a much better way:
http://www.investopedia.com/university/fiveminute/fiveminute6.asp

I tend to agree with the thinking that AIM is a poor technique. However there are lots of AIM users on this board, and I'm sure they'd disagree with me.