Replies to post #1264 on A.I.M. Users Bulletin Board (AIMUSERS)

[Qarel]

A bit boring, that error in my demonstration. The multiplications towards the end should have been divisions. Let's try again and be more direct:

[1] S * (pc-y) (Conrad)
[2] pc - y * (1+s) (Lichello).

We consider when both formula's are balanced, i.e. are zero. Then we get:

[3] pc - y = 0 (S<>0) (from [1]), and
[4] pc - (y * (1+s) = 0 (from [2]).

Combining [3] and [4] gives:
[5] y = y * (1+s) and throwing y out gives
[6] 1 = 1 + s

Which can only be true when

[7] s = 0

Conclusion: Conrad's method is mathematically equivalent to Lichello's method without Safe. Conrad's S is a scaling factor, Lichello's (1+s) is a translation factor.

Regards,

Karel

[Conrad]

Hi Karel,

I think this discussion goes off on a tangent. I think there is no need to make it more simple than it is. I explained it to Barry but I think it should be commented on:

All I meant to convey is this

pc-y*C1 = (pc-y)*C2

is true voor any given SAFE C1 and for a set of PC- en y- Values. For example in case y had changed 20 % from the Pc
value then y=0,8*pc as could be for example the -20% limit of the Dead Zone, then values C1 and C2 are uniquely defined as fractions of each other.

My conclusion was that the form of the Lichello Order is simply (pc-y)*S

It is clear that I did not mean to say that the two constants would be the same for all values of y. That was not the focus of the discussion. The point to be made was that in the Vortex Method I simply used a multiplier on the Buy Advise to make the Order bigger or smaller.

In order to compare the effect on the resulting Orders one simply has to select a reference point at the Dead Zone Limit and select a Lichello Safe and A Vortex F that gives an identical First Order at that Limit:

OK here we go:

SAFE 0,1 Pc 1000 y= 700 Here the SAFE may also be called 30% if you like. The idea is the same.

From previous information the Lichello definition this would be
1,1*700=770 Then Buy = 1000 - 770 = 230 (if this is the correct way of using the Lichello SAFE)

This would translate to the Vortex Buy F(300)---> F= 230/300

From this point onward we simly calulate various Orders at different y-values.

You can make your own conclusions on this. On firts sight it would appear that as the stock price drops that the factor 1,1
on the stock price has a diminishing effect so that for y=0
the Lichello Buy is 1000 and for the Vortex Buy = 767.

This means that when both systems start out with a buy at 230,
at y=700 and the next buy would be at a progressively lower price drop, then the Lichello system would run out of cash before the Vortex system would. This would require an additional parameter to create delays in the buying. If one did this then you woud effectively conserve more cash with Vortex to buy stock at lower prices.

Now, if with these setings the price fluctuations are small and the Buy Limit woudl be lowerd so that buys are generated at a y-value of 800 then the Vorted Buy would be bigger. This means that cash is invested more effectively.

A single comparison does not prove anything. If the system would only trigger sales at proce drops of 300 then the two systems would perform equallly well. It is only when the buy
order limit is changed up or down(without) changing the SAFE or the F-factor) then then Vortex Method does better on the Buy side by conserving the cash longer...but this only helps for sustained price drops to beyond cash depletion.

Conrad

PS

This might create a flurry of responses. I am running behind already so I might not respond very quickly.