Conrad said:
I would suspect that maybe instead of adding 100 shares in the calculation one might instead try to add 1/10 of the shares, just like is done for the case with N1 > 1000.
Here's what I propose:
i) New Buying Price= N*1.2
ii)New Selling Price= N*0.8
If you do this, you get the progressive holding zones (16.6%, 19.9%, ...) from the original example!
For instance, you asked what would happen with a stock price = $100 and a initial equity investment = $10000:
PC = 10000
N= 100
New Buying Price = 10000/(100*1.2) = 83.333
New Selling Price= 10000/(100*0.8) = 125.0
This results in a Minimum Buying Increment of 16.666, which of course is 16.666% of the initial stock price of $100. And the Minimum Sell Increment of $25 is 25% of the initial stock price. These numbers are proportionally the same as Chakrapani's example in the $5 stock.
I realize that this Hold Zone is arbitrary, but it does seem like a reasonable parameter to apply across stocks of varying price levels.
It also preserves the progressive buying amounts at lower levels, as seen here (after the first buy of 10 shares at 83.333):
B2 = $83.333 - $16.666 = $66.667
PC2= 10000 + 833.33/2 = 10416.66
A= 10416.66/66.667 = 156.25
B= 10416.66/(N*1.2) = 10416.66/(110*1.2)= 78.9
A-B = 156.25-78.9= 77.35 shares bought
77.35 shares bought*$66.667 = $5156.69 invested
And you would get increased buying at the next level down, too...
This seems to me like a reasonable way to delay buying until the price level reaches "bargain" levels.
However, I do not agree with the idea of buying "on the way up" (for example buying 10 more shares when the price returns to 83.333). I think Vortex/AIM have the right idea about selling when stock value exceeds a determined Portfolio Control level.
