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Below is a hypothetical example of buying IBM stocks recently.
Section One shows using AIM (original version) by the book, without regard
to timing, and buying near the very peak (on 99-01-20 @ $200, rounded).
Section Two shows using AIM judiciously, and varying some of the parameters
in his variables. Noticeable is the application of a simple 21-day moving
average for timing in recent buy (buy on close when close crosses over the
21-day ma: this happened on 99-02-22, at $178). Second Two is slightly
optimized, but not much (more like changing the parameters at will).
Both sections start with $10,000 and will average down until all money is
used up. (Commission is omitted.)
SECTION ONE SECTION TWO
Trade# Buy @ Qty $total Buy @ Qty $total
------ ----- --- ------ ----- --- ------
1 200 25 5,000 178 11 1,958
2 175 1 175 73 14 1,022
3 170 1 170 48 23 1,104
4 165 2 330 33 36 1,188
5 160 2 320 23 61 1,403
6 155 1 155 18 73 1,314
7 150 2 300 13 133 1,729
8 145 2 290 8 35 200
9 140 3 420
10 135 2 270
11 130 3 390
12 125 3 375
13 120 4 480
14 115 4 460
15 110 5 550
16 105 3 315
--- ----- --- ------
total 63 10,000 386 9,998
== ====== === ======
average p/s 159 26
=== ===
Despite everything, it is still very true that it will hurt emotionally a
great deal for a real trade, to see the portfolio value drop by that much
(i.e., if the IBM prices reaches that low).
As I say, this is only a hypotethical situation and only for illustration
purposes. More important, as suggested by one member, is whether one has
the stomach and stamina to actually adhere to the trading rules. Frankly,
I don't know if I have the guts or not...!!??!!
Regards,
Wong
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