Replies to post #377 on A.I.M. Users Bulletin Board (AIMUSERS)

[OldAIMGuy]

Hi Don,

Well, I'm very close to your ratios, but did it with eye ball only. I'm using essentially 7.5% SAFE and about 6% for minimum trades for now. Equity/Cash Ratio will still be determined by the Idiot Wave.

I brought up StockCharts and plugged in various percents for the zigzag and counted the "round trips." I looked for fall off at the high end and a plateau where the number didn't change much over a range.

Basically when ZZ is very low, round trips are frequent, but less profitable. When ZZ is very high round trips are very limited but very profitable. For each stock and fund I've observed so far (really just getting rolling on this) there seems to be a plateau where the number of round trips stays relatively constant over a fairly large range of ZZ percent (say from 20% to 30%). I then go to the most profitable end of the plateau and use that as my number for breakdown.

Then I go to AIM and break down the ZZ value into its SAFE and Min. components. Let's say the sweet spot I've chosen is 30%. I could set that up as 10% SAFE (times two) and a minimum trade of 5% (also times two). Total SAFE is 20% and total Min. is 10% for a grand total of 30% between a buy and a sell.

Of course there's no guaranty that history will continue to repeat itself. The company or sector may lose its volatility or the market in general may lose it. In any case, it looks like it makes some sense.

When I studied one of my stocks, I found that I could keep the total ZZ range pretty fat. However, if I kept the SAFE value at 10% and increased the size of the min. trades, it became more profitable. I had the same frequency of trades, but would have traded larger total value with each move. This I found quite instructive. Now, as I go through all my equities, I plan on trimming SAFE back to normal levels and then adjusting the min. size order to fill in the rest of the prime ZZ range.

In that example, I'm now using SAFE of 10% both for buying and selling but have expanded the Mins. to about 10% also. I'd been using 15% SAFE on both sides and a 5% min. before. Now, with the same size Hold Zone, I'll be making bigger trades with the same LIFO percent as before.

Thank you one more time for bringing this interesting tool to my attention. I'll let you know more about what I find with my other stocks.

Best regards, Tom

[Lou Dina]

DonCarlson, I saw your post about the 35 ZZ studies you did. I noticed you offered to email it to someone else and would love a copy to study. I like the ZZ concept. My email address is [e-mail]


Thanks,

Lou Dina