VORTEX AIMing

[Conrad]

A new day has arrived Heartland99!

I have been reading about Vortex and have a question about which value for Fb and Fs (the buying and selling factors) you use in your personal trading.
You mention that a value of >0.8 results in very aggressive trading. I agree that it could lead to investing very large sums after relatively small market declines. Do you use this aggressive approach in your personal trading? I am thinking of using a value of 0.1-0.3.

Also, I was curious what kind of Hold Zone you use with Vortex?

All the settings in an Vortex Portfolio are very much dependent on the stock behaviour. There is no Standard Vortex but there is a Default Vortex. . .This is the way it comes when it is downloaded(Free for the Full program).
The Aggression Factors Fb & Fs are set to 0 and both Hold Zones are set to 10%. This is a conservative setting that produces trades compared to Standard AIM just a little higher than Standard AIM. I compared the performance of AIM and Vortex in the Run Clive presented:
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=77298802
See also my post:
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=77297792

As you notice the Fb had to be set at –0,6666666 or – 2/3. to get a Buy of 1200 for
P1= 100 and P2= 80. . .Buy Hold Zone = 20 % and the First Buy was $ 1200. The reason hat the Fb is exactly – 2/3 is interesting but not really relevant. It is a result of the incidental setting of with a Hold Zone of 20 and a Safe pf 10% I believe it was.

The complexities of relating the value of the Fb and Fs to a certain stock behaviour are beyond a rigorous formal mathematical analysis. One would have to model a good number of historical cases that would indicate certain identifiable trend that would make sense to investors. One such case would be for example the Lichello Test Series. I can optimise for that(and I did) and from this an optimised set of parameters results. I looked it up. Here are the Optimised Parameters:

Investment cash + Equity = 20.000. . .(I use commas as the decimal point & point as 1000 separator).
ECR = 16.288/3.772 = 4,318134 or CER =3772/16288 = 0,231582
In term of total investment Cash % = 16.288/20.000 = 0,8414 or 84,14%
Trading cost = 0
Interest on Cash= 2% Annually based but compounded at every Trade
Buy Hold Zone = 0,6 . . .fraction…= 60 % J
Sell Hold Zone =1,5 . . . fraction. . .=150% JJ

Remark: this is a consequence of the fact that the price between the 100% defined Trading Limits in this case from 4 to 10 is a rise of 6/4 = 1,5 or 150% . For this case this Hold Zones can be calculated but in practical cases one would have to find the best points either by analysing, for example the Bollinger Bands or simply by Optimising them from trial & error in the program. . I can do that with Vortex Excel but nor with Vortex Windows. . .(Making an Optimisation program for Vortex Windows is beyond our present perspective).

Fb= 0,81132
Fs= 0,21106
Buy Cash Factor = BCF = 1.00
Remark: this is present only in Vortex Excel. It is introduced for optimisation purposes, and allows the allocation of cash to a purchase when the Reserve < Buy Advice. This allows in general cases the remaining reserve to be stretched out for a price that drops more. In this case the trading occurs @ the extreme limits. . .when the price = 4 we know there is no more price droppingJ
With these settings Vortex is optimised. . .one can not get a penny more out of it.

Run time =1278,38 Days. . .= 3,50 year bases on 365,25 days /yr
PV= 3.862.857
R= 2.374.708
V= 1.488.149
Interest earned= 17.135
The reason that no trading cost were used was because that was so decided in the Test Competition.

ROI Yield = 5490 % . . Annually. . . . Bases on 20.000 being invested
ROTAI Yield = 227 % Annually Bases on Time Averaged Investment of 483.966
Remark: In this case I have only used the accumulated + equity buys over the years as the actual investment and averages that over the 3,5 year. At the time we ran this I had not developed the ROTAI Yield equation properly yet.. In the final ROTAI calculation the Sells are seen as negative investments that are dumped into the Reserve and because of that the average invested amount becomes much smaller. This makes the ROTAY yield always considerably higher that the ROI.

So with a great deal of experimentation one could get a feel for roughly the best settings. Also Common sense will help. Generally I tend to invest aggressively(when I am investing) but also I would really “dig into a stock: to make me feel safe it will not disappear, and like most AIMers I like Funds, but then the more volatile ones like I used to invest in: Latin American Equity Fund. .based on the entire Latin American Continent. . .it will not go to zero like en Enron did. Currently I am not investing. . .complex reasons that I have explained various times on the AIM Forum. . .but I am always running Dry Portfolios. . .for example SPY and a Penny Stock Portfolio with Dutch Penny Stock . . .That one will blow you mind. On the SPY run I hold myself as if I am actually investing. I started SPY Demo some years ago when it was rather volatile. I did a 10 year Optimisation Run and came up with the optimised values. The high volatility was not repeated. The original SPY run must be in my Files and are also published on my AIMing Forum. . . See Post 491
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=61045289
Note the Holding Zones I started with:
17,5% Buy
18% Sell
Fb=0,8
Fs =0,6
See Post #496: http://investorshub.advfn.com/boards/read_msg.aspx?message_id=70888762
Holding zones were changed due to low volatility to both 7%.

I have been running SPY from 03-01-2011 up to now and the parameters have again been changed to match the trend. . .SPY is almost “dead in the water” now. The settings and details are as of 24-August 2012:
Buy HZ = 2%
Sell HZ= 3%
Aggressively has been increased
Fb= 0,9
Fs= 08
And still very few trades are triggered.

Current price =141,51. . .I use automatic downloaded prices every time I look at the situation. I do not enter prices every day but I look at then almost every day so I know what is happening.
At the moment he SPY Chart looks like a Flat Liner. . . almost.
Results are:
PV= 22.112
R= 15.208
V= 6.905
Profit = 1.622
Interest earned = 450
Trading Costs = 131. .Trades are 11,95 each . . .12 trades total in 1 year and 8 months.
Dividend = 44
Total investment in equity = 5.042
ROTAC Yield = 6,3 % . . .Base Capital allocated 20.000
ROTAI Yield = 15 %. . .Time Averaged Investment 6.218

Remarks
1 In spite of the aggressively being high. . .and the Holding Zones quite low. . .the low Volatility at the time, which has already been like this for quite a while I get very few trades;
2 The ROTAC yield in Vortex is a change in definition from the simple ROI. The Cash Injections & Withdrawals for the Portfolio are Time Averaged to account for time dependent additions. In that sense 1) Interest earned is Added Capital and 2) Dividend is Added Capital. . . .it makes the Average Cash Inlay larger over time;
3 Investment Costs are Investments. So, any costs necessary to maintain the Portfolio are seen as investment and added in the Time Averaged calculation. Also when equity is sold that is a withdrawal from the equity. . this makes the Investment Base smaller. This reflects reality in terms of Yield very accurately. . .it looks at the Average Capital at Risk.;
4 When a Dividend is executed as a Share Issue I have to manually enter the details of it. . In fact it is a Share Purchase are zero cost (apart from possibly and administrative fee). This is not provided for automatically. What I do is: Virtually Receive the value of the Dividend, add it to the Capital Inlay( with gets larger) and the I buy the shares that were received as Dividend. The Reserve remains unaltered but the both the equity Value rises and the Capital Investment rises. This is done appropriately different for the ROTAC Version and for the ROTAI Version.

The question as to setting the parameters are to a large extend intuitively learned from experience but there are practical guidelines. With out doing an optimisation with historical data I do as follows. . .Al things you do know being equal:

A Decide on the type of Portfolio you are setting up:
Future Growth Portfoli: This requires buying something and letting it ride- Set the Buy Hold Zone(BHZ) higher that the Sell Hold Zone(SHZ) at say
BHZ =8%
ZHZ = 10% . . .adapt this on the hand of what the Trading zones would be.
Fb = 0,6
Fs = 0,4. . .This would during an average rising trend accumulate value by buying strong in the Dip and selling weak on the rise. . .If these are too aggressive for you then use
Fb= 0,3
Fs =0,2 . . . or even 0,1 as you suggested yourself!!!!! Being aggressive and the volatility is nothing to write home about then use
Fb = 0,8
Fs= 0,6 . . as I have don for the SPY Fund.

Retirement Portfolio. . .This, in case you need to draw say every month some money from it to add to you pension income. . .It would be silly to let the money grow till the day you die . . .unless you want the money to go to the children J
This option does not work well for an identified down trend. . .it requires investing and you may not have the money for it. Waiting for an Up-trend is then only an option if you have enough Reserve to invest it.
BHZ = 10%
SHZ = 8% or lower the more often you need money. . .this operate toward selling on the rise but if the price drops you invest a bit ad you reap the profit of the Dip. The equity must be a safe one. . . being retired and not be rich requires restraint on investing what you have for it.
Fb = 0,4
Fs = 0,6. . . .or both a bit higher or both a bit lower depending on how aggressive an Old Man that is not rich dares to be J.
This mode allows you to do moderate buys at the bottom of the trading range and reap good profits on the top of the trading range. In general this mode the Portfolio would slowly run it self empty on a horizontal trading range. . .quite appropriate for a retiring person. On the down-trend the depletion goes fast and on the up-trend the depletion goes slow. As the trend changes you can adapt the settings to your needs. For a down-trend that gets worse you might even do well to Bail Out with what you have and go on a holiday with the money you rescued, or wait for an up-trend. . .You Are The Boss!
Never let the money in equity if you do not feel OK with it.

This is what I advice. . .the less aggressive an investor you are the lower the FB ought to be and the Fs could be left reasonably high. . it will be a Safety Mode to assure your money is taken out as the market goes to its top. Of course, if you let it tide you will have more profit. . .IF you sell in time at the top. . .that might NOT work. Your Sell Order may be standing at the end of the Queue and the Sell will occur near a new Bottom. .

With the Fb=Fs=0 . . (Default values) your trading will be more aggressive than Standard AIM because of the SAFE.

AIM Algorithm = Trade = (PC-V) – x*V. . . . .x= Safe Fraction
Vortex Algorithm= Trade = (PC-V)*1 for fb=fs=0. . . .No Safe
For x=0 Aim would be identical to Vortex at the Start.

Here you can see one of the differences between AIM and Vortex.. The other Difference is that Vortex Updates the PC for Buys as well as for Sells and in such a manner that after a Trade PC=V.

Remark on Start-up CER

For this you could very well use the AIM Recommended V-Wave. . .unless you have a better guideline. Personally I like to keep myself understanding the nature of the equity behaviour and I analyse it:

For a down-trend that is serious. . .wait for an up-trend. . .invest nothing yet. . not even a penny.
If the down-trend has bottoms out and the trend goes horizontal go for Equity-Cash 80-20. . .or wait till a certain up-trend of say 15 or 20% and dump ALL your money at once. Then AIM yourself out of equity stepwise on the rise.
For an up-trend that has lasted a long time already use Equity-Cash = 20-80. . or bet on that it will rise more and buy 80% equity.

If you have no clue which way prices going and it is cycling a bit horizontally go for 80-20 at the bottom of the Trading Range or for 20-80 at the top of the Trading Range.
The 50/50 is for cases that you know nothing about the trend nor about the prices at the moment. . .then two things you should know to jump in at 50/50. Ask yourself (for the clueless ones)J:

· Is the equity a safe one?
· How much money am I prepared to lose from the money I can afford to lose?

The jump in with a smile when you know the answers. . or keep your mony in your ban account. . .if the Bank is a safe one. . . that is.

One more note on Aggressive investing with Fb and Fs being high. As you can see with Fb=0,9 and Fs= 0,8 in the Spy Portfolio you do not have to deplete your Cash when the price drops more than you expected. As the price drops all of sudden very much you can SEE it and then you can intervene. . .do not buy right-a-way but wait till you see what is happening and understand IT. Then when you are ready to buy on a low price you do it. . .or you wait for an up-trend again.

The End

(Some more tomorrow on my Penny Stock Portfolio)