Replies to post #478 on VORTEX AIMing

[Conrad]

Hallo Sam! Good to get some feedback on this. I am a tinkerer so this issue has my interest.

I used to run models on QQQQ but for many years I have not looked it it and PSQ is unknown to me but I take your word for it that they are approximately inverses f each other but even if they are not then the inverse AIMing should still work.

I recently was reminded by Clive (Is775) that the Ladder Approach would be a good method for determining the trade sizes (once set op a plan to use exponential trade sizes increments. . .ideas developed years ago in discussions with Don Carlson. If one uses a mayor Currency Pair like the EUD/EUR and the EUR/USD there is no danger that one of then goes to zero, so the inverse trading method like I want to use for X and the 1/X should be good examples of what we are aiming for, for any equities that approximately behaves like that

1. As X rises and 1/X falls then both exhibit a trading range and the have a Midpoint value. From the midpoint we model the trade sizes on an increasing scale to go all in at the lower limit and go all out on the upper limit. This is the idea for both X and 1/X.

Possibly you already understand this from the previous discussions:

Trades follow some pattern like this as the rate deviates from the Mean 1, 2, 5, 10 or something like that, based on an exponential calculation or ant progressive function. . .the exact form is only a matter of optimisation. W could even start the modelling a function like Trade =ax with x being the price difference from the mean value;

2. Standard AIM had a little different structure than Vortex but with both there are variables to have control over the trade sizes. The main difference between AIM and Vortex is that in AIM one does not recalculate the PC. This means that for AIM if the trading changes from buying to selling there is a sort of dwell which cause the selling to be delayed as prices rise. However, Vortex can also do this simply by using a larger holding zone for rising prices. The advantage of Vortex is that the Residual Buy in AIM is eliminated;

3. Updating every week: I have never paid any attention to using a special timeframe for updating. I used to look at the stock market every day and if it moved so that Vortex gave me a trade I did the trade. . this way I capture volatility but also if the trend is up one tends to sell too quickly. This I can arbitrarily suspend if I have some expectation that the rise will continue. . .The more I know about the equity the better I can respond. This always creates controversy in the AIM Forum. My philosophy is that if I know a lot about the equity the less I need AIM. However Vortex is created also for people that want to play safe and want to use Vortex to update only every month. Vortex can be adjusted to be simply a Buy & Hold Manager. Something for everybody;

4. The split of a QQQQ sell into 20% cash and 80% PSQ would be a personal choice which would make sense if you do want to build up a cash reserve if you have a worry about PSG becoming a deep diver without coming back. In my X and 1/X equities I am not considering that unless an optimisation of the system does not create the same size for the buy as the sell . With the Dollar and the Euro I would in the first instance simply match the trades Sell(X) = Buy(1/X). If for some reason I would feel that I need some cash I would simply add new cash to the portfolio. . . .For Testing this would not be a problem. In real life it could be that this is not an option and then a more conservative setting is needed and to build some cash might be an option then;

5. You appear to see this inverse AIMing as some thing different than regular AIM. I do not see it that way. With a single equity one would AIM in such a way that the trade sizes are “suited to the occasion”. . . meaning that you would try to make the trades optimum. . either by way of a gut feeling on the one hand or by some optimisation package on the other hand. . . you would do the same with a second equity. The logical thing then to do is to match the trading amount of the two equities so that they optimised as a equity pair. If an ideal optimisation is carried out for this then it is still regular AIMing but with added know-how for the best trading technique as compared to AIMINg without this know-how. . . .Is the AIM Forum not primarily focussed on discovering the best trading methodologies? Of course it is. That there is little animo for actually finding optimum methods for inverse equities is due to the fact that a lot of AIMers do not like tinkering like Clive does. Clive often presents great ideas but they are somewhat complex and time consuming to implement, so most AIMers wont do it, or they say the extra effort is not worth it. In many cases that is quite true!;

6. In regards to Vortex: Its too bad there appears to be bug in regards to systems that are being run in the USA. .In Holland we have no problem with running Vortex on XP. That is what I use. Chris Kruidenier sespects that is has to do with eithet viruses or Incmatibilities with US Based computer systems. He susgest to run HiJack This virus removals. In case you have not discussed your problem with him please contact him on:

http://www.ckweb.nl/index.php

and let him try to help you get Vortex going;

7. In regards to Vortex being better or not than regular AIM. I believe it is. In many Competitions we ran on this in the past Vortex runs usually ended up with a significant better yield the AIM runs. The only system that performed very similar to Vortex was the system developed by Don Carson. After discussing the details of out trade calculation it was discovered that Don’s system was in principle identical to Vortex. Both systems used this: Trade = M*(PC-V). The only difference was that the value of M was calculated different. The system Don used was actually a function that was based on the Trading Range Upper and Lower bands. In essence Don already used a progressive function: as the price moved towards the limits the trade sizes increased automatically. . .more or less as in the Ladder System proposed by Clive. This results in a buy & sell response that is more closely resembling only trading at the limits of the trading range.

As of now I have not been spending much time in actually creating the mechanism for the perfect algorithm for trading X and 1/X. As I mentioned I am already running the x and 1.X with the USD/EUR and the EUR/USD currency pairs but I have not yet liked the trades. Also the runs do not have an identical starting date so that are not really comparable 1-to-1. What I use is the following for both equities:

Buy Holding Zone = 1%. . . . . Buy Aggression Factor = 0,95
Sell Holding Zone = 2%. . . . . Sell Aggression Factor = 0,70

These settings are intuitive and they are not linked yet, so I am AIMing the two individually against a Cash Reserve for now. The selling is delayed relative to buying. So the price change is double for triggering a sale. Buy aggression is larger but it occurs on smaller price changes. I intend to use an exponential trading structure make the trades progressive. . that is for a given price change the trades become larger and larger as the price moves away for the mean. This ad a complexity in the programming which I have not yet managed to complete.

I hope this gives you a idea what I am doing in this. For your QQQQ and the PSQ I would also try to use a progressive function for the trades as the price moves away from the mean. You can do this manually:

For example you can divide the mean to the limit in 4 steps and decide to invest the Reserve at the mean 100% in the 4th step downwards in the following steps like so:

Reserve at the midpoint = $ 10000. Suppose the Holding zone = 20%. The equity rate would drop to a value of 0,24 =0,16 % in 4 steps. This is of course extreme but this is only an example to illustrate the idea:

Step Equity X
1: 5% = $ 500
2: 8% = $ 800. . .invested 1300
3: 20%= $ 2000 . .invested 3300
4: 67%= $ 6700 . .invested 10000

Thus the $ 10000 cash would be fully transformed into a large number of low cost shares.

On the rising value of the equity we would do some thing similar, but then the total value of the equity at the mean value to be sold off with 4 steps. The difference here is that the value keeps rising as we go, so the calculation would be different. Assume the midpoint value of the equity is € 10000 and after the first rise in the rate it becomes $ 12000 and thereafter a sell occurs at each 20% rise:

Step Equity 1/X. . . Value left
Midpoint. . . . . . . . . . . $ 10000
1: 5% = $ 600. . . . . . . $ 11400
2: 10% = $ 1368. . . . . . $ 10032
3: 30%= $ 3612 . . . . . . $ 6420
4: 83,34%= $ 6420. . . . . $ 0

Now, this is still an arbitrary example one would AIM two equities separately. If however the two equities are X and 1/X are AIMed there should be a match between Sells and Buys. It is obvious that the calculations become rather involved and should be automated. In this example the 4th step of the selling . .the amount of $ 6420 should be used for the 4th step of buying above. You can see there is an approximate mats in these example already. In the actual execution it would not matter that the sells and buys are calculated exactly equal. One would simply make them equal or the difference can be set aside as a reserve or one could add a bit of cash if there is some shortage.

I have developed these figures “on the spot” here using some Excel calculations for modelling the trades. From this it is clear how I am planning to model the trade relationships between the two equities. For the QQQQ and the PSQ I would do an identical modelling. Then after it runs I would attempt to optimise it. . . The optimisation would be difficult as this requires a formal mathematical technique I do not master. In practice it means I would have to be satisfied. For the time being, with an arbitrarily devised trading relationship. As long s it is progressive with price change it would function quite well, I am sure.

Regards.

[Conrad]

Sam,
I have been looking at the technical aspects of using the progressive Buy & Sell techniques using the ladder system I mentioned before. Here is an example I worked out on Excel that has some automatic features in it.

Buying from a Midpoint Reserve Value

Step #. . .% Buy. . . .Buy Amount. . .1000=Midpoint Reserve
1. . . . . . . . .10. . . . . . . . .100. . . . . . . .900 <-----Reserve Residue
2. . . . . . . . .13. . . . . . . . .117 . . . . . . .783
3. . . . . . . . .20. . . . . . . . .157 . . . . . . .626
4. . . . . . . . .38. . . . . . . . .238 . . . . . . .388
5. . . . . . . . .100 . . . . . . . .388 . . . . . . .0

Total invested = 1000 at a significant lower share price than at the starting point.

The Steps could be any fixed percentage increase in share price till the share price hits the Bottom of the Trading Range. At that point the Reserve has been completely used up. The percentage in the percentage column gives the progressive Buy Amount for each step to the top. You can see here that as the price reaches the trading range lower limit it get progressively larger so that it get invested efficiently. The progression is a the cubic function. Curve fitting shows a very close fit fort this function:

Buy Percentage = 0,2999x^3 - 0,3645x^2 + 0,3266X + 10 (For 1 => x <= 5)

At the Midpoint (Step # 0) y=0 by definition for the application. In this application I have not yet matched the Buy-Sell procedures to the Vortex AIM procedures as that would be a complex change I am not prepare to implement. The examples here only define how you would invest from the starting point of an investment on the basis of the price drops. In Principle the way Vortex AIM works is on the basis of an iterative structure. This means that after every trade the whole system is again in a starting condition, except the values of the quantities involved are different. This is the same for the Ladder System shown here. After a trade you can again apply the Buy Ladder in an identical manner. You have again a Reserve Value but for every step up the ladder as the price chance you increase the value of x by 1. The only difference is then that after a series of price drops the likelihood of a price rise becomes more likely. If that happens you revaluate the situation and the trading range appears to widen you can change the ladder to say 6 or seven steps up and down .

When at the start the price starts rising there is likewise a Ladder for Selling. I have used an identical ladder for dumping equity as the price rises:

Step #. .% Sell. .Sell Amount. . .1000=Midpoint Equity Value
1. . . . . . .10. . . . . . 110. . . . . . 990 <-----Equity value Residue
2. . . . . . .13. . . . . . 142. . . . . . 947
3. . . . . . .20. . . . . . 208. . . . . . 834
4. . . . . . .38. . . . . . 349. . . . . . 568
5. . . . . . .100 . . . . . 625. . . . . . 0

The cubic equation for this progression for selling is:

Sell Percentage =0,6307x^3 - 1,5548x^2 + 2,4799 + 10 (For 1 => x <= 5)


Total equity sold = 1434. . .an Average ROI=43,4 % on start investment, and a ROTAI=50% for the same period because the invested capital was averaged at 868. If the original 1000 starting equity value would have been left without selling any part of it the total value would heve been 1500 and the profit would also be 50%. This shows that with selling off the equity stepwise the %-yield would remain constant at 50% ROTAI, but the risk of losing the whole investment due to a sudden drop in value is much, much lower! That remains the great advantage of AIMing.

When the prise is rising then the rise-percentage for every step is entered into the functional relationship for calculating the Sell size. In this case above I have used 10% as the Holding Zone step size after each Sell. For example as the equity price rises 10% then the Midpoint Value of 1000 becomes 1100, and a sell of 10%= 110 and that leaves an equity value of 990. And so for the next step, each time you wait till the price rises by 10%.

The question here, in Regards to an Vortex Aiming procedure, is what to do if the price change does not go 5 steps in one run but reverses before the 5 steps are completed and the equity price is not at the Mid Point of the Trading Range?

One option is simply to wait out the reversing trend till the price is back at Midpoint of the Trading Range and us the new values as a new starting point. This would be the simplest solution as then you have again 5 steps up and 5 steps down for a repetition of the procedure.

Another question is what to do when the price has arrived on the limits of the Trading Range?

Suppose the price has gone 5 steps up and you are 100 % in cash. What to do when the price drops? At what point should one again invest if the first option (waiting for the price reaches the Midpoint price)is not desirable? The answer is simple: "At what price will the equity become worth buying again? From the price history one can see what the new Trading Range will be and you can wait till the Midpoint is reached and you can repeat the procedure.

The above procedures can be applied to clearly identified trading channels. If equities do not exhibit trading channel behaviour one is left to use common sense and on prognoses for the future. One would then better rely on methods that Warren Buffet uses (Analysis of financial statements and picking the right equities and then trade on opportune moments dictated by the market)

In regards to building the Ladder System with progressive Buy & Sell functions as outlined above these can not be build into VORTEX AIM without a complete restructuring of the Advice Generator. However VORTEX AIM is so flexible that you can enter the progressive trades that are recommended by the Progressive Ladder System calculation directly into VORTEX AIM. You simply ignore the Vortex Advice and enter the buy or sell you want.
In VORTEX. . .it simply carries it out the trades and the system carries on as usual.
It simply means that from the behaviour of the equity prices you calculate the progressive Trade Advice using a separate calculation scheme as I have shown above.

This method is possible when you are using the VORTEX Windows version or the VORTEX Excel versions. With the VORTEX Excel version you can simply calculate the trades on the same Excel Work Sheet.

The Progressive Ladder calculation is very simple. If it is not tied into the Vortex algorithms. It only requires a bit of extra manual work to run an Vortex AIM system that way.

Regards,

[Conrad]

Hi Sam, I just happen to run into this post again and noted your remark that you could not download the Vortex program.

Various changes have been introduced by now although we had other report that downloading was a problem. That problem has been worked on and we now have Version 1.26-2 on the download link.
http://www.ckweb.nl/vortex_us/index.php

The start-up problems have been resolved as far as we can tell. . . it has to do with particular settings of the client's compter.

The trading of Inverse Fund remains and interesting issue. I was interested in trading Eur.Dol and Dol.Eur but ran into the fact that:

1. When I bought Dollars I paid in Euro from an Euro account
2. When I bought Euros I paid with Dollars from a Dollar Account

At the time I tested this combination I noticed I was running but the distance to the destination I was running to was became greater with each step I took towards it. . .it reminded me of a Science Fiction book I read once. . .Delta D = (a*Vr – b*Vb)*t with b*Vb > a*Vr*t.
This is like running on a conveyor belt that runs backwards.
Any gains that were accrued on the one currency were wipeout on the other currency by way of trading costs.

When trading inverse funds within a currency system this problem does not occur. Afer I understood what was happening I no longer pursued this angle.

Regards,