Replies to post #28987 on A.I.M. Users Bulletin Board (AIMUSERS)

[ls7550]

Hi Tim

Can I just check with you that we're thinking along the same lines.

My thoughts are that we might use the LR indicator applied to the longer term to determine a major ladder range. For example using the FT100 6200 day regression and a range of standard deviation steps outwards, I might pick perhaps a 3000 ladder bottom and 9000 ladder top



Refining down to a 250 day regression I might identify perhaps an inner (smaller) ladder with bottom 3700 and top 5500



(here's the same scaled, but zoom'd in a bit)



Personally I've found picking the ladder top and bottom levels to be the most difficult part, LRS is great as it provides us with those values automatically.

Having the major (larger) ladder top and bottom, together with the minor (smaller/inner) ladder top and bottom, its then just a simple task to proportion the current core stock, core cash and current dynamic cash/stock levels

e.g. in this case ( 5500 - 3000 ) / ( 9000 - 3000 ) = 41.7%
and ( 3700 - 3000 ) / ( 9000 - 3000 ) = 11.7%

So we have 11.7% cash reserve at the lower end between the inner ladders bottom and the major ladders bottom. 41.7% stock for the inner ladder's top to the major ladders top. And 30% working capital for the inner ladder range.

We then allocate/trade the inner ladder based on the inner LR based ladder step price levels (together with other possible TA indicators).



The whole thing is dynamic, requiring regular refreshing of the major and minor ladders, providing us with a reasonable indicator of exactly how much to have invested and how much in cash at any one time, and when to trade.

I think there may even be some potential to use the proportional/linear ladder switching idea I considered the other day in message 28908. Perhaps picking which of the two to use (switch to) within the inner ladder depending upon how far the current stock price has deviated from the central trendline at that time.

I'm starting to like this idea a lot :)

Immediately I see that even this simple quick example has identified a narrower range between the major ladder top and bottom compared to the horizontal ladder I've been using in the iBox table over on the AIM UK message board. That top/bottom range narrowing effectively increases the amounts traded and hence improves potential stock price volatility capture gains. And the trades are more likely to occur at or around potential turning points, which could improve overall cost-averaging benefits.

Thanks for sharing the LR indicator idea.

Best. Clive.