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Strategies & Market Trends : AIM Questions and Answers

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To: OldAIMGuy who started this subject	7/26/2001 1:14:42 PM
From: OldAIMGuy	of 221

Q...... Trade Frequency Hello, I have recently discovered AIM, and like it a lot. I also read the board on SiliconInvestor. I have a question about AIM and the discussions on the board..... It seems that AIM users are trying (on the boards) to come up with stocks that generate a lot of trades so that you can make money. That seems logical. However the Sell and Buy SAFE are intended to prevent to many trades. These two things seem to be in direct contradiction with each other. Why not just lower the SAFE margins if you want more trades?. After all the "Minimum Transaction Size" will protect you from paying the broker to much. Best Regards, Marinus ------------------------------------------------ A......... Hi Marinus, Your question is a good one and is following to a logical conclusion a part of what needs to be addressed by AIM users. As you indicated, if one were to reduce the SAFE ranges slightly one also reduces the size of the "Hold Zone" where no trading occurs. However, you also have to understand that reducing the size of the Hold Zone also reduces the individual trade profit generated. The trade minimums and the SAFE combine to create this zone of no trading and its size determines the Last In, First Out (LIFO) profit potential of AIM's trades. We can increase trade frequency, but only at the sacrifice of LIFO profits. There is a point at which Total Return is maximized for any particular investment (total trades at a certain LIFO profit). After one passes that point, then total return falls while trade frequency increases. This point is where the account is said to be "churning" which means money is being circulated through the account for no appreciable improvement to total return. The most difficult part of fine tuning AIM in such a fashion is we only have history on which to base our settings. There is no way to know if the settings will be optimized for the future. Most new AIM users attempt to make AIM into a short term trading vehicle. It's designed to generate high profits each time the cash portion of the account is put to use, and to do so over a long time frame. The diminishing return that occurs with SAFE reduction has to be compensated by greater frequency. It's a difficult balancing of influences. I usually restrict my trading to about once per week. On some issues the restriction is to once per month. It depends upon the stock or mutual fund in question. It also depends upon the size of my cash reserves. Please let me know if there's anything further I can do to help you as you get started with AIM. Best regards, Tom

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