Karel Sounds much like relative performance, if your down -20% it is not as bad as the index that is down -30%,you have out performed the index by +10%.
Means that the downside is compressed versus the upside, geometrically spoken.
AIM has a higher buying density over a unit length of price than a selling density over a unit length of price, which is OK when you look at it in this light.
I remember on the REBAL(?) forum we introduced a correction multiplier for this a while back.
I am not sure I understand why you need to do this in 139 steps. You can show it in 4 steps:
1)100 *0,8= 80 2)80*0,8=64
etc.
3)64*1,2=76,80 4)76,80*1,2=92,6
If you do this in the extreme and drop 100 %:
100(1-1)=0 0* 1,0=0
Not surprisingly here, of course, is that is you drop with less than 100 % you never get to zero! This encouraging News: The market will never drop to zero!:-)
It is clear that from a Buy and Hold perspective the market must recover more in percentage points than it previously dropped(as you also showed). In absolute recovery it of course has to recover exactly as much as it previously lost.
In this light I like to present a simple chart that illustrates very strongly the source of the profits in dynamic trading when profits on the high side pay for the share purchases on the low side. Most technical AIMers already know this, of course, but usually people want to explain things with words, and that is seldom powerful enough to drive a point home. I refer the principle of the Skewed Share Acquisition Ratio:
In relation to the VORTEX Method this explains why it is still possible to realize a Gain in the Neutral Mode for which the aggression factors are set to zero and the Resistances are set equal. In the Neutral Mode VORTEX would, for example, buy at 100 and then buy at 90 again with a 10% Resistance. As the price rises to 99 VORTEX in the Neutral Mode would sell at 99. This appears to be a loss invoking setup with Buy High-Sell Low.
But is it?
Are things always as they appear to be? Consider that $ 100 is invested at 100:
Buy 1 for 100 Y= 100 N=1 Price drops to 90: Buy for 10 @ 90 Y=90+10=100 Quantity=10/90=0,1111 N=1,1111 : Using 4 decimals Price rises 10% to 99 Value = 1,1111*99=110 Profit P=10 Selling : Y-rw= 110-100 = 10 : This is 100 % profit taking Quantity sold = 10/99=0,1010 Cycle Price Loss= 1% !!!! Share price = 99 Value Y=100 equity + 10 cash = 110 Portfolio value Quantity N= 1,010 !!! Capital Gain----- =10 --------100% on differential investment of 10 Share Gain------ =0,01 ------9% on differential share acquisition of 0,1111
The most interesting thing is the Capital Gain as well as the Share Quantity Gain is positive on a share price loss of 1 %.
This is a powerful illustration of the fundamental reason of why VORTEX Investing is so effective and of course, AIM Investing in general as well: VORTEX creates profit on a dropping share price cycle in its basis Neutral Mode in which actually a Buy High-Sell Low methodology is used. That is the secret that in superficial observations(by outsiders) is rarely discovered. Possibly even some experienced AIMers do not recognize this fundamental powerful capital growth feature in AIMing. Many investors probably stop at thinking that the Buy Low-Sell High is the only thing that is at work.
Remark: With the Standard AIM, using the SAFE this effect would possible not be present until the Portfolio size is large enough. Also, obviously, this effect would be completely masked by the effect of trading costs. Here it is demonstrated to bring the powerful compounding principle of dynamic trading to the surface.
Obviously, the parameters setting in the VORTEX Neutral Mode is not at all suitable for an Operational Mode as the differential gain calculated here is solely an effect of the Skewed Share Acquisition Ratio and not of the gain of selling at a higher share price. For the Operation Mode the VORTEX parameters are set such that the Buy Low-Sell High feature is accentuated strongly. An example of a mildly aggressive operational mode is:
Buy Resistance 10% : Buy Aggression 0,5 : increases buying on down side; Sell Resistance 20% : Sell Aggression 0,4 : increases selling on the up side.
These setting might globally represent a VORTEX Default Mode for inexperienced investors.
In closing this illustration demonstrates strongly that the market does not need to recover to previous levels after a drop: To make money with AIMing the market may even stay down and we still can make a profit in every cycle, and as long as the market cycles AIMers keep laughing, or they should be!
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