Replies to post #6981 on A.I.M. Users Bulletin Board (AIMUSERS)

[karw]

Hi Karel,
I like the idea of raising PC after a Sell.
Then the amount of PC you will get should be dependent on the profit percentage made. The greater the Safe distance travelled, the greater the PC increment.

I am very interested in your NASDAQ experiment. If you don't mind please send me a copy.

Kind Regards,K

[Conrad]

Qarel,

Interesting remark you made:

Now I am going to be heretical. (Bernie, close your eyes!) The problem, if you want to call it that, is that PC is raised after a buy. This brings the next buy closer, which is illogical. For the placement of the buys and sells it would be much more logical to raise PC after a sell.

Heresy is sometimes refreshing. It creates opportunities to look at some issue from a different perspective. All AIM variants have come about on account of some heresy. But to call raising the PC illogical is only justified in the light of a different perspective of what an AIM structure is supposed to achieve. Raising the PC(in the Lichello Thinking) is a consequence of the objective to let the PC reflect the added capital. The fact that Lichello selected 0,5*Buy for updating is a consequence of his idea of a golden mean for creaming profit on rising prices and taking advantage of buying opportunities at economical prices: Adding 1* Buy would create a very severe Buy Advice right away and adding nothing would do very little to reflect added capital. So, in the development of AIM this 50% Golden Mean worked OK, and since then this has been part of AIM BTB(there is no fundamental reason that 0,5 for the update factor is best). With a little bit of heresy one can make the updating factor a flexible amount, or a negative amountdepending on what you decide is you main objective for the system you are building.

If the objective is profit maximization for a cyclic stock a negative value for the PC update factor does not lead to profit maximization: if you raise the PC after each Sell the Selling proceeds very aggressively and one would deplete his stock very fast. This is the opposite of depleting cash too fast. Also this approach would lower the PC on dropping stock price and would conserve cash severely. This is more in line with logic if conserving cash is your main objective. But generally speaking, conserving cash all the time in wait for a deep diver is certainly not an optimal strategy, for most stocks cycle within reasonable limits and you ought to deplete your cash on the low limits and sell shares at the high limits for maximization of profits and risk minimization, not too soon and not too late. Conserving cash is generally not desirable for profit maximazation(unless the stock dives under the typical range).

With Vortex the PC floats between these extremes: PC= Stock Value after every trade and in my opinion this kills two bird with one stone: 1) Vortex AIM does not get Residual Trade Orders. This is only logical if it is the objective to eliminate Residual Trades, and 2) Vortex AIM achieves what I call my profit creaming objective: Vortex trades on price deviations from the Last Trade, and the preference for weighing either the buys or the sells more heavily or less heavily is achieved by setting the buy/sell resistances and the buy/sell aggression factors as you want them. These things are also only logical if you set out to define such objectives for the AIM system you are building.

Raising the PC after a Sell is logical if you want to profit optimally from rising prices. Only if you want to bail out rapidly when prices are rising then raising the PC after a sell is logical, but it is certainly not an good general scheme for profit maximization.

For profit maximization is it paramount to concentrate the buys and the sell close to the typical upper and lower price limits. A negative PC update factor can not achieve this. At least, not without other features that would counteract the rapid selling(very HIGH Resistance settings, or would counteract the eliminated buys(very HIGH Resistance settings. This approach might perhaps be a workable solution:

As the price rises the high Resistance would create a Large Sell after the Resistance is breached(The BailOut). YES this works to Bail Out

As the price drops the high Resistance would not create a Large Buy as the Advice remains small due to the dropping PC. This option would not provide a great incentive to buy at low prices.

It would appear to me that this Negative PC Update is not a good way for making profits generally.

Regards


Conrad

[lostcowboy]

Hi Qarel, I think I was the one to talk of the Constant Dollar Plan, I found the info in ,Practical Formulas for Successful Investing by Lucile Tomlinson. She was mostly interested in the fact that when the price returned to the starting price the ratio of stocks to bonds would be different than what you started out with. My understanding is that the ratio would shift more and more towards the bond side of the ratio, she recommended increasing the Constant Dollar Amount to correct this. She thought it would be best to do the increase when the stock was at a low point, rather than at a high point. As far as I know Mr. Lichello was the only person to come up with a method of doing the increase.

You said The problem, if you want to call it that, is that PC is raised after a buy. This brings the next buy closer, which is illogical. For the placement of the buys and sells it would be much more logical to raise PC after a sell. I tried this with my nasdaq daily aim sheet and got a real improvement.

I think about a year or so, on the SI board someone voiced this idea. At the time I modified my AIM spreadsheet so it would increase PC after a sell. I then tested it with the 10,8,5,4,5,8, and repeat data stream. Starting with $10,000, at the end of eight years I showed a total of $121,546. At that time I sent Tom a email, asking him to let the guy know that while his modification did end with a profit, it did not come close to AIM BTB, and was probably a bad idea. Now it could be that I have a error in my spreadsheet, or this could just be due to the data stream. I did not test with other data streams. Have you tested with other data streams? I think at the time, I concluded that by not raising the PC after the buy, the sells happened to soon, reducing the profits, also the buys at the low points were not as large as AIM BTB.