Replies to post #27323 on A.I.M. Users Bulletin Board (AIMUSERS)

[ls7550]

Hi Jon

A stock price of $10 drops to $5 = -50%
A stock price of $5 lifts to $10 = +100%

this +100% should be compounded, AIM or VORTEX or whatever system doesn't know how to.

I disagree.

Cash over the longer term has averaged around 5%, so if you take a set of historical stock price data and discount at 5% p.a. you end up with a price series that reflects the stocks price drift around the risk-free (cash) rate.

Measure the number of 2.0 and 1/2.0 (e.g. +100% and -50%) changes across that discounted series (or 1.1 and 1/1.1 - or any other combination) and generally the number of up's and down's tend to be balanced.

100% gain, -50% fall = your back to break even. -50% fall, 100% gain = your back to break even. With equal numbers of both then generally stock prices follow the random-walk. Little different to that of a coin-flip game.

So how do you win at a 50/50 game. Re-balance is one way. D'Alemberts betting sequence is another.

Re-balancing provides relatively small benefit compared to D'Alemberts.

What's D'Alemberts - simply start with 1 unit stake and increase your stake by 1 unit after each losing play and decrease the stake by 1 unit after each winning play.

D'A applied to stocks? - Well that's simply the same as buy a unit amount each time the stock price falls by a set amount, sell a unit amount each time the stock price rises by a set amount. And that's what AIM basically does.

How to amplify the benefit - increase the unit stake amount - and that's what LD-AIM does.

AIM however doesn't discount for the risk-free rate, so over time you end up with more up's (sells) than down's (buys) overall.

Personally I've stripped out that volatility capture AIM component and run that part separately to the price appreciation capture component. The volatility capture generally uses relatively little working capital (unless stock prices fall significantly). For AIM's price appreciation capture component (which generally uses relatively large amounts of working capital) I use a stop-loss based strategy.

A benefit of the D'A betting sequence is that you can still be winning even when there have been more losing steps than winning steps.

 
 Stake         1    2    3    4    3        = -13 
 Outcome         0     0    0    1    1     (where 0=down/lose, 1=up/win) 
 Gain                            8    6     = +14 
 

Overall +1 unit profit across -15% of stock price fall followed by a +10% of stock price gain (assuming each 0=-5% stock price move and each 1=+5% stock price move) or -5% stock price decline overall.

Clive.

[Conrad]

Hi eViLSeeD!

I'm speechless!
This never happened before! :-)

Is your post a Dutch Treat?