Hello Jibes,
My last post was not meant to explain Vortex in depth. It meant to show that I had explained it elsewhere, and that Vortex was essentially simplicity itself. In the past I discussed all the details but also the original thinking behind it. That made it rather more complex.
The M is indeed a multiplier in a similar way that you have one(a separate M for the Buy and the Sell) but the Vortex M(also separate for the Buy and the Sell) remains constant between two optimizations, and the M-value is calculated a bit different(but that is trivial because in the end the actual values are(ideally) derived at via optimization on a previous price data set).
I have made a detailed write-up on the testing on New AIM vs Vortex. I though that New AIM was the same as LD-AIM and did not remember at that time that New AIM was yours. (I will look up my original report and send it you. My conclusion was that there were only minor differences between Vortex and New AIM. The underlying principles are very similar and the results can also be quite similar, but they also can be quite different.
The reason for the possible different results is that Vortex has minimally 4 parameters for the comparison while New AIM had only 3(you used a single percentage (4%) for the Holding Zone definition while Vortex has separate percentages for the buy and the sell holding zone.
Optimization creates many Mountain Top High Spots in the Yield Function. This creates many point on which you get multiple local high performance points. To pick the BEST Point is difficult for you need to select the point at which the high yield is least sensitive to price deviations from the optimization data set. Some high yield points can quickly change to No Yield Points or Negative Yield Points if the price behavior is only slightly different than the prices used for optimization. Also, a simple high yield using the Return On Investment (ROI) with the $ 10 000 can mean quite a different thing on the yield on the basis of Capital At Risk(ROCAR).
Here are two runs I did on the New AIM Price Structure.
Capital = 10 000
Cash to start = 5 000
No trading fee and no interest on cash.
No negative cash allowed.
Run 1
ROI= 23 % (69 % annualized)
ROCAR= 42 % (126%)
The ROCAR is calculated taking account of the length of time of the money is actually invested(Is at Risk).
Buy Resistance(BR)= 1,7 %
Sell Resistance(SR) = 16 %
Buy Multiplier(BM)= 5,56
Sell Multiplier(SM)= 3,85
Run 2
ROI= 95% % (285 % annualised)
ROCAR= 3 % (9 %)
Buy Resistance(BR)= 1,55 %
Sell Resistance(SR) = 14,5 %
Buy Multiplier(BM)= 7,76
Sell Multiplier(SM)= 3,85
Many other optimum points can be found. The striking difference to note is that in Run 2 the ROI is actually strongly inflated: The original $ 10 000 is no longer representative of the money that is invested. As you can see the Buy Multiplier in Run 2 is much higher than in Run 1. This means that the system is much more buy oriented than in Run 1. In Run 2 this inflates the Buying relative to the selling and cycle profit is more readily invested if the price dips. This creates much more profit but also the invested amount of money is much larger than the $ 10 000 on which the ROI is based.
As you know, "Figures cannot lie, but liars can figure".
If one uses a particular scheme and shows high profit it may mean that the real investment return is mediocre of even very bad.
Run 2 is from an optimization point of view(Total End Capital Maximization) the BEST: PV = $ + 19 000 at the end of the run but the actual yield is mediocre(9% annualized). Invested ROCAR capital was ~$ 33 000 and this means a lot of cycle profits were created but reinvested(large number of shares in the end). This could be very profitable if the price is going to rise again!!!!
Run 1 looks fine if you only look at the ROI. If you look at the ROCAR you can see that this is terrific at 126 %: a very efficient use of money. The ROCAR investment was about $ 5 500 for the period. The PV was about $ 12000. This also means that the investment held a relative small number of shares(not so good is the price rises again)
With New AIM you can obviously also get various different optimization points that may look good via the ROI or look good via the ROCAR. To evaluate yield data one should really present to himself an honest picture.
O, I am delving into matters you did not query but an evaluation of New AIM and Vortex cannot be done fairly unless I deal the more relevant ROCAR into the game.
Anyway, none of the above changes the fact that New AIM and Vortex are very, very similar. The differences are minimal.
Your latest discussion on the progressiveness of the factors could well lead to a more effective use of cash and increase the real yield. The ideal form of this progressiveness will undoubtedly totally depend on the actual price behavior of the stock. For this reason I dare to state that this ideal form cannot be a single predetermined mathematical formula. The ideal formula could possibly belong to a formula family and then the formula would need some coefficients that are to be found via optimization. Of course, with enough trial and error you can also build models for certain types of stock behavior.
The key to finding the best fitting formula for the progressive nature of the multiplication factor is to determine formally what you want to achieve when stock prices have certain characteristics:
1) For a horizontal trading range. Determine ahead of time how you want to react normally and what to do if the price moves out of the range. This will give a clue for the model of the Progressive Function;
2) For and Up-trend you still will have to deal with the price fluctuations to cream of cycle profits. This gives a cue to the required function.
3) for a Down-trend the reasoning is the same, only the function might be different. In this case you need to determine also if you should bail out or exhaust the cash. This latter is simply a matter of overriding your system rather than looking for a function to have the system make every decision for you.
Regards,
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