Hi Jim-

Just want to make sure we understand the same thing... the Zig-Zag is a
graphic depiction of trading activity or volatility that is useful for
determining trading range, i.e. setting BUY SAFE/SELL SAFE (resistance).
*Prior* to using the Z-Z, and as part of the selection process, I
include Beta greater than 1.4 as one of the elements along with P/E,
Price/Book ratio and a few other things Tom has told me about (I'm
terrible at Fundamental Analysis, so I copy what others have told me
works for them). To my mind, there's no point in doing the analysis with
the Zig-Zag if it doesn't first meet the beta criteria.

Besides giving you a graphic idea what activity the stock has shown in
the past (remember that this is no garantee of what the future holds),
the Z-Z is really useful for adjusting the BUY/SELL SAFE values. If you
use the 5% trade size criteria that Lichello suggests, then the move
from the most recent sell to the first buy would be 5% + BUY SAFE + SELL
SAFE + 5%. If BUY SAFE = SELL SAFE = 10%, then the trading range must be
5% + 10% + 10% + 5% = 30% or more (I think I misstated this in the last
note, leaving off one of the 5% values). That's a pretty big swing and
some cyclical stocks might do a complete sysle in a year. More likely
you'll see a narrower range and that would require smaller SAFE
(resistance) values or even smaller values of both SAFE & trade size.

The goal with trade size is to keep commissions to less than 1% of the
trade. If you have chosen a trade size of $1000, for instance, and you
pay $10 in commission, then you would meet the criteria. If 5% of stock
value is $500, now that $10 commission is starting to look bigger at 2%
of the trade cost. Sometimes you can't avoid it and you just have to
live with the expense till the account value increases, diminishing
trading expense. My accounts are at Schwab and I pay $9 for most trades.
In a new account (a single stock), I'll end up paying close to 2% which
eats into returns.

Before setting GTC trades you have to open the position. If I'm happy
with what the current chart looks like (this part is very subjective),
then I'll open the position for the full amount with a market order.
I've been told I'm nuts for doing that and that I should average in
during a pull-back. I find watching the train leave the station without
me on board too frustrating, so I just go for it. You have to do what
works for you.

With the position in hand, make your entries into PCA (set your
Preferences, create the new Holding, enter the first trade, adjust
starting cash if need be) for each stock or fund you're going to AIM. At
this point you already have some idea what the resistance values should
be (and probably you've confirmed them with the Optimizer). The hard
part is over and you now sit back for the ride... however bumpy
(hopefully!) that might be.

re: starting cash reserve... Tom's Idiot Wave was a very useful tool in
that it evaluated market risk and suggested a starting cash reserve as a
% of account value. That's no longer available, but there is something
that comes close if you have access to Value Line. In the Index section,
look up their "Price
Appreciation Potential". Subtract this from 1 and the resulting number
is a possible starting cash reserve. The creators over on iHub call it
the Value-Wave. Right now this "PAP" value is about 0.75, so the
suggested starting cash reserve would be 1-0.75 = 0.25 * 100% = 25% vs.
the one-size-fits-all value of 50% (2/3 of that or 33% for mutual funds)
that Lichello suggests. Something for you to consider depending on
whether or not you think the market has put in a bottom. I have no idea
if it has or not since the market gets to do whatever the market wants
to do. Here's what the Value-Wave looks like:

http://investorshub.advfn.com/boards/read_msg.asp?message_id=27880797

You may have to register to see this note but I don't believe you have
to pay to just read on the site.

re: volatility... in addition to beta greater than 1.4, it's also
possible to use beta less than 0.75. In this case the equity tends to
move *opposite* the S&P 500. I've never traded stocks of this type so I
can only guess this might reverse the starting cash reserve recommended
by the V-Wave.

re: trade size... PCA uses a fixed $ amount for trade size (or # of
shares), but Lichello suggests a % of equity value (shares *
price/share). That means trade size will change as you buy/sell. At one
point I used a % of portfolio control to keep trade size more constant,
but PCA doesn't disclose what PC is. You can adjust PC up or down, but
unless you look at the files in an editor like Notepad, I haven't found
a way to display the current PC.

There's really a whole bunch more that you can do to vary the operating
parameters of AIM to make it work for you. PCA is only a tool and you
have to operate it in a way that suits both you and the equities you're
trading. Possibly the most important thing to remember is that, while
AIM emphatically works, you have to have deep pockets to handle the
buying. Nerves of steel help too! :) AIM is not a get rich quick
approach but more like get rich slow.

Bruce


> Bruce,
> Thanks for the great info. Here is the plan I am working now:
> I have a list of 100 or so good fundamental quality stocks I got from
> a
> "value investor" type book's website as the start point. Then I
> remove
> the highest P/E stocks from that list.(which should take in lots of
> tom's
> tips (low P/E, Dept, etc.). I was trying a bunch of different
> volatility
> indicators but the Zig-Zag looks best (knew I'd get to use zig-zags
> someday :)). Set ZZ % to 25 in my chart package, yet i still keep PCA
> "Resistance" setting at the default 10.... I think the ZZ @ 25 and
> Resistance 10 are the key messages, right?
>
> So I take the top 10 ZZ'ers or from the list and place a GTC order in
> the
> quantity specified (TBD).
> Now to change my "share allocation" to 20K, this is updated in the
> Portfolio>Equity Manager>Position Management Setting's "Beginning
> Cash"
> box , correct?
> Thanks
> Jim
>