Replies to post #9441 on A.I.M. Users Bulletin Board (AIMUSERS)

[Qarel]

Hi Steve, on cyclic reduction and creeping brackets: the reduction will be one cause of the creeping brackets. Portfolio Control will keep a portfolio about the same value, and allow it to grow. In combination with 'cyclic reduction' (=you get less and less shares when you buy and sell the same %), this makes for 'upward creeping brackets'. Same Share Value, less shares! I would guess that the brackets stop creeping upward when after a buy and a sell you have enough extra shares to compensate for the addition to PC. The ratio of the number of shares to PC after a buy/sell-cycle should remain constant. Let's say you have 1000 shares @ 10 and buy 100 @ 8.33. PC is now 10417. After your next sell, you would want to keep 1041/1042 shares, so you could only sell 5.3%. Or you could sell a little more (or less) to see the brackets creep upward (or downward). Just an idea, I didn't test it.

Regards,

Qarel

[Conrad]

Hi Steve,
Now I have something to chew on! This gets me close to what you are seeking!

I get the feeling that there are more Lichello's(or were) than I can shake a stick at. You gave me this( with the initial values SV= 10000 and PC= 10000):

[i/]Stock Value = 8333
PC of 10000 - SV of 8333 = Advice of 1667
Safe = 10% of SV or 833
Advice of 1667 - Safe of 833 = Action of 834
834 Action / 8333 SV = .10 (10%)

First of all, the new share price of $ 8,333 appears an arbitrary price drop which is not related to a SAFE of 10% nor to a 10% Holding Zone nor to a 10% Resistance. From this I conclude that you your Trade Trigger is arbitrarily chosen. This is fine but in my opinion not
related to any structure.

The Action of (1667-833,3)= 833,7 I understand: Buy Amount = $ 833,7 (forgetting the round-off for now).
Buy Quantity= 833,7/8,333= 100,048

N2=1100,048: OK, the Trade quantity is approximately 10%.
PC2=10000+833,70/2=10416,85
SV2=9167,00

Now the question for me is the rationale behind the next Sell Price. Since the price drop from 10 to 8,333 was arbitrary why should the next share price not be arbitrary? The next Sell Action, if nor specifically determined by a preset level, can not be determined as it is a free variable. I can set the Next price at 10% above the 8,333 or 20% or arbitrarily take the price whatever it happens to be at the next time I look at the stock market. I have no idea how you set your GTC Sell Price. How do you determine the Sell price if the stock starts rising? In the example the assumption is that the stock price rises. Suppose that first the stock price rises to such a level that (PC-SV)=0, then Price=10416,85/1100,048=9,469 and if I let the price rise another 10% then the price is 10,416. This is a price rise of (10,416-8,333)8,333*100% = 25%. The fact that you used a price rise of 42,84 % makes it clear to me that the Sell Price was arbitrarily picked to get a GTC order to the broker. The new price was 8,333*1,4284=11,90(or close to it). This is what I queried.

Using this Next Action Price for the GTC order:

SV=13090,57
Sell = 13090,57-10416,85 -1309,057 = 1364,15

The Sell Amount is 10,42 % of the New SV . . .OK, this close to the 10 % Trade Target on
Share Value.
Qty. to Sell = 1364,15/11,90= 114,634 and this is also 10,4 % of the Share Quantity.

Now maybe I understand what you are doing.
You assume a next Sell Price and then solve for the Next Share Price via the 10% Trade Amount


Sell = SV-10416,85 -SV/10 = SV/10

SV-SBV/5 = SV(1-0,2)=10416,85

SV= 10416,85/0,8=13021,06 and SV/10= 1302,106 which is obviously 10% exactly.

This gives the general formula

Next Sell Price = {PC/(1-2S)}/N

The Next Sell Price using 10% of the shares comes out to be 1302,106/110,0048=11,838 an that is a price rise of 42,04 %

This puts the missing dots on the i's !!! You start out by forcing the Buy and the Sell Amounts as well as the Trade Quantities to be a given percentage(the SAFE), and then you derive back the necessary Share Price that you use for the GTC Order.

OK I get it, but this 42% rise is quite a large rise to wait for, and in the mean time you miss the volatility of a horizontal trading range(this issue is discussed before).
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To achieve the symmetry you desire(the way I understand it) is to eliminate the share quantity erosion and to prevent the price differences or price rise from running up to keep the portfolio trading activity from running out of steam.

{b]Look at the Formula again{/b]:

SP= {PC/(1-2S)}/N

With your scheme the PC rises on each Trade Cycle while the N gets smaller each cycle. This give you an exploding SP.

Suppose you set SP=Constant=C1= {PC/(1-2S)}/N. IF you insist on the form for the N then the variable is the PC(or the other way around):

1 PC=C1*(1-2S)*N

2 N=PC/(1-2N)/C1

Without going into it deeper right now(I have to run), this guideline would give a clue as to how you need to modify the algorithms under the condition that you either have to drop the Trade Quantity algorithm or the PC algorithm.

The first option gives the form]/b] of the PC-Update function when you substitute the function for the Trade Quantity, but then you still end up with an eroding share base and the portfolio does not grow as intended(you just cream off the profits).

Option 2 gives the form of a New Trading Quantity Function when the PC-Update is retained. I think that is what might be desirable if you want to hang on to the Lichello PC-Update.

Now I run!

I will explain the Multiplier later.