Replies to post #30716 on A.I.M. Users Bulletin Board (AIMUSERS)

[ls7550]

Hi Conrad.

The best way I found of managing Ladder for me was to use cash reserve, not stock value as the base reference. I fix the total allocated amount, steps and trade size amount that applies at each level to the initial values and stay with that throughout. The total allocated remains fixed, even if the actual combined stock+cash total value might be more or less as stock prices change over time.

Periodically however I recreate or expand/contract Ladders according to how much funds are actually added or removed from that investment (i.e. if I were Laddering stocks and a rebalance from bonds occurred that added say $4K to the stock ladder, then using the 40K allocated assumption as per my previous examples the new total allocated becomes 44K and a new Ladder (Level Cost) is calculated).

You can of course however use a more dynamic approach. Perhaps setting the top and bottom and actuals to current values over time, maybe for example using something like Bollinger Bands as the top and bottom levels.

When so its worth noting that the proportional Ladder we've been discussing amounts to the exact same as using a Log Stochastic.

For example if the current yields is 4.29, the top is 10.11 and the bottom is 2 then

( log(4.29) - log(2) ) / ( log(10.11) - log(2) ) = 0.47096

If the total allocated was 40K this indicates

40,000 * 0.47096 = 18838

From my previous message http://investorshub.advfn.com/boards/read_msg.aspx?message_id=41294733 If we start when the yield is 4.29% we might buy $18816 of stock The slight difference to the 18838 calculated here is due to rounding error.

Once you have a top, bottom, current and a given stock exposure amount to apply at the current level, you know how much you have available between both sides of current to top and current to bottom.

For your more dynamic and exponential spend/buy rate concept where you wanted to exponential type scale trade sizes, you could partition those two current-to-top and current-to-bottom ranges (and associated stock/cash amounts) also in a log like manner so that more was traded out at the edges (top and bottom region) and less traded around the current price level.