Hi Ocroft:
"Move in for the kill at the bottom."
This issue has been on this Forum for as long as I can remember, although I can not remember now just how long that is
What you are suggesting is essentially a sort of fundamental technique that is used in combination with TA. . .and with any other investment concept:
Identify the Bottom and jump in. . .Identify the Top and jump out
This is nothing else than the foundation of investing that any kid can undestand:
Buy Low & Sell High
There is nothing new here!
Saying that you would Not buy at 41 but at 46 (+12,2%) could just as well be
Not buy at 41 but at 44 (+7,3%) or even Not buy at 41 but at 48 (+17%)
Any Recovery price could work out fine or it could work out wrong(you said as much yourself).
So, you Buy at 46 and invest a Lump Sum =10000(you may have been waiting a year for this), then the price drops to 42. . .What do you do then? Do you have an algorithm for what to do at 42 ???
As has been pointed out this method can result in a disaster of repeatedly missing the bottom and buying high and repeatedly missing the top and selling low. . .(extreme example of course).
In the year you have been waiting to identify the Bottom @ a 12,2% Recovery the stock price may have cycled +/- 11,8% 10 times while on the average the price has dropped from 100 to 41 and then you would have been waiting for a year doing nothing An Vortex AIMing(1) approach with a Hold zone of +/- 10% may have executed 10 profitable Sells and reaped a good profit while you have been waiting 1 year for a 12,2% Recover after a price of 41 and have done nothing yet. An AIMer may have dropped in value a bit on the first 10000 but may have invested more money at low process and his number of shares would be increased a great amount on the cycle profits(Volatility Creaming).
On a down trend one can even increase the Total PV and then when the Recovery starts the large number of share acquisitions will accrue profits rapidly, and if the up trend is just as volatile then there is more profit reaping even when one is in a selling spree.
The point being here is that any one of us can propose a scenario that would work best for a particular Investment Scheme. . . and if the price follows the proposed scenario then it would beat most other system(if not all of them) that were not “geared up” for that specific scenario
You method is well known already. . . .So I am curious what you are actually presenting in relation to AIMing??? We already know about all many techniques that can be used for delaying the investments to lower prices.
So, is that the only thing you are saying. . . that it is better . . .generally. . . to invests only at the Bottom. . . and I presume. . . that it is better to sell only at the Top?
(1)
In Regular AIM at a +/- 11.8% price cycling may not do this effectively due to the Residual Buy Effect. . .waiting extra long for the recovery price change to be large enough to trigger a reasonable Sell amount. . .The Vortex AIM does not have this feature. . .It advices a proportional Trade Size in proportion to the Price Change from the last trade. . .Vortex is a Ratio Trading System (Y= aX). . . .Standard AIM is more like an Offset Trading System (Y = AX - b).
The difference between the two systems is actually more complex that . . .AIM is also extra Asymmetric due to the PC-Update is not done for rising prices. . .this makes AIM and Vortex very difficult to compare on a one-to-one basis for any example.
All that can be done practically on this is to Compare the End Results for the Portfolio's in which the starting conditions are identical so that the First Buy and the First Sell would be identical under identical Hold Zones . . .From that point onwards the results will start to diverse. . .either Vortex or AIM would perform better after a long trading period. . . .this is solely determined by how the price changes develop.
I might add here that in Vortex AIM the Yield as a Fraction is now defined quite differently as in Standard AIM:
In AIM this is done as Yield-fraction = (Profit)/( Initial Cash +Initial Equity)
In Vortex this is:
a) Yield-fraction ROTAC = (Profit)/(Time Averaged Cash Investments)
b) Yield-fraction ROTAI = (Profit)/(Time Averaged Equity Acquisition Costs)
In these two formulas I have included cost factors for the equity acquisitions, interest earnings and dividend in an appropriate manner.
The Yield Figure is therefore a very realistic figure for the Capital @ Risk
