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Lichello's Automatic Investment Machine

  • #1
  • First Post: Jul 7, 2005 6:05pm Jul 7, 2005 6:05pm
Has anybody on the forum read Robert Lichello's "How to make a Million Dollars in the Stock Market?" Despite the lame title, I found the book to be well written and (perhaps when I put some real money into futures) useful.

I can't do the book justice in this short space. But, basically, the book just gives an algorithm for a trade envelope. When the price of your particular future goes up, you sell a little or your position. When the price goes down, you buy a little. How much you buy or sell is completely determined by a formula, so no decision is left to the investor (other than what stock to buy or sell).

The "Automatic Investment Machine" (AIM), as Lichello calls it, works best with highly volitile stocks. So, it seems the forex would be a great place to use Lichello's Method. Alas, he does not provide an algorithm for buying on margin.

Has anybody tried using AIM or some variation of it in the Forex? I've tried to figure out how to tweak AIM to use it with margin. But, the closest I can come so far to "figuring it out" is to use the base 10 trading on GFT to reduce my position size.

By the way, if you haven't read Lichello's book and want more information, I would just type "Automatic investment Machine" into Google. There are some good sites that give all the information covered in the book.
  • #2
  • Edited 7:29pm Jul 7, 2005 7:20pm | Edited 7:29pm
Quoting mattlorig
Has anybody on the forum read Robert Lichello's "How to make a Million Dollars in the Stock Market?" Despite the lame title, I found the book to be well written and (perhaps when I put some real money into futures) useful.

I can't do the book justice in this short space. But, basically, the book just gives an algorithm for a trade envelope. When the price of your particular future goes up, you sell a little or your position. When the price goes down, you buy a little. How much you buy or sell is completely determined by a formula, so no decision is left to the investor (other than what stock to buy or sell).

The "Automatic Investment Machine" (AIM), as Lichello calls it, works best with highly volitile stocks. So, it seems the forex would be a great place to use Lichello's Method. Alas, he does not provide an algorithm for buying on margin.

Has anybody tried using AIM or some variation of it in the Forex? I've tried to figure out how to tweak AIM to use it with margin. But, the closest I can come so far to "figuring it out" is to use the base 10 trading on GFT to reduce my position size.

By the way, if you haven't read Lichello's book and want more information, I would just type "Automatic investment Machine" into Google. There are some good sites that give all the information covered in the book.

I played around on a variation of AIM recently. The attached chart is one of two I sent a friend. It was based on the grid trading method discussed on the OANDA forum http://www2.oanda.com/cgi-bin/msgboa...;f=15;t=002524
Attached Image (click to enlarge)
Click to Enlarge Name: ATMChf - Aggressive.jpg Size: 48 KB
  • #3
  • Jul 8, 2005 4:52am Jul 8, 2005 4:52am
Quoting Matsu
I played around on a variation of AIM recently. The attached chart is one of two I sent a friend. It was based on the grid trading method discussed on the OANDA forum http://www2.oanda.com/cgi-bin/msgboa...;f=15;t=002524
Hi,

Can you give more details of the rules you used?

Which currency(ies), what grid interval, TP interval, timeframe used for test (tick, 1min, 5min, 15min etc), start date of test, how much cash top up required to keep within margin call, duration of test?

Thanks
Alan
  • #4
  • Jul 10, 2005 2:00am Jul 10, 2005 2:00am
Quoting firehorse
Hi,

Can you give more details of the rules you used?

Which currency(ies), what grid interval, TP interval, timeframe used for test (tick, 1min, 5min, 15min etc), start date of test, how much cash top up required to keep within margin call, duration of test?

Thanks
Alan

To answer your questions:

The chart was based on trading USDCHF between 28 Aug 2002 and 23 May 2005. Of course you need to diversify in real trading. You could be in for some very nasty surprises if you trade only one pair.

Grid interval was 100 pips, TP interval was also 100 but not based on 100 pips from entry price. Test was based on daily bars, assuming orders were set once a day.

As for cash topup, it realy depends on market action. As I have mentioned above, be prepared for surprises. So diversification is very important.


Regards,

Matsu
  • #5
  • Jul 10, 2005 8:19am Jul 10, 2005 8:19am
Hi,

Thank you for your answers.

Quoting Matsu
To answer your questions:

....TP interval was also 100 but not based on 100 pips from entry price.
That is a very interesting variation. I don't quite understand, could you explain more please?

Thanks
Alan
  • #6
  • Jul 11, 2005 12:11am Jul 11, 2005 12:11am
Quoting firehorse
Hi,

Thank you for your answers.

That is a very interesting variation. I don't quite understand, could you explain more please?

Thanks
Alan

This is where Lichello's come into the picture.

As an example, at every TP level, if there is at least 100 pips profit compared to the average price of open positions, then 25% of open positions would be closed for profit.


Matsu
  • #7
  • Jul 11, 2005 4:35am Jul 11, 2005 4:35am
Hi,

Quoting Matsu
This is where Lichello's come into the picture.

As an example, at every TP level, if there is at least 100 pips profit compared to the average price of open positions, then 25% of open positions would be closed for profit.


Matsu
Thanks for that.

Is that 25% of every single open position including losing positions?

Could you clarify what method you used to determine how much to place on each trade.

And have you had a chance to perform the same backtest across different currencies?

Many thanks
Alan
  • #8
  • Jul 11, 2005 9:52pm Jul 11, 2005 9:52pm
Quoting firehorse
Is that 25% of every single open position including losing positions?
It is 25% (just an example) of the total open positions.


Quoting firehorse
Could you clarify what method you used to determine how much to place on each trade.
Trade size is based on a percentage of the account value.


Quoting firehorse
And have you had a chance to perform the same backtest across different currencies?
I tested on several pairs, but not many. Anyway I have stopped doing it for the time being as I reckon it would require a lot more work before I would be confident enough to trade it realtime. Moreover, this method is really a lo.......ng-term strategy. It requires long-term commitment. I am not sure I am ready for a long-term commitment yet .


I have attached a chart on GBPJPY.

Regards,
Matsu
Attached Image (click to enlarge)
Click to Enlarge Name: ATMGbpJpy.jpg Size: 79 KB
  • #9
  • Aug 14, 2006 6:14pm Aug 14, 2006 6:14pm
Matt, I read Mr. Lichello's book many years ago and have since been a huge fan. I've also looked at adapting his algorithm to create a trading system for the Forex markets. I was wondering if you've had any success in this area, and if you'd be interested in partnering up to see if we could create something together.

Let me know your thoughts.
  • #10
  • Aug 14, 2006 6:16pm Aug 14, 2006 6:16pm
Who keeps bringing back these old ghost threads? LOL
  • #11
  • Last Post: Oct 25, 2021 5:16pm Oct 25, 2021 5:16pm
I've been giving the idea of AIM and forex some thought as, with the original post, the volatility of the forex market should make it amenable to AIM. In the current forex market, likely unavailable when the original posts were made and commented on, mini and micro lots are available for trading, rather than whole lots. Thus, with this standardization:

1 lot = 100,000 = 1.00
1 mini = 10,000 = 0.10
1 micro = 1,000 = 0.01

I think it best to divorce what you're actually putting up in margin and use the value of the position to run the AIM engine. For example, say I want to put up around $500-600 in margin on the EURUSD pair. At current price this equates to a position size of 0.25, or, effectively 25,000. We can use AIM to compare the invested value to the current value as we would for stocks. Thus, hypothetically, AIM calls for me to invest $3,800 based on the difference in values. So, I would buy 0.04 microlots, adding 2000 to portfolio control. Similarly, sells would require a reverse transaction, again, as it is with stocks.

I believe this would work best from starting with a position that goes initially long, rather than short, as flipping all the AIM instructions to buy high and sell low could be done, but that may get more confusing. Also I think this would work best for one currency pair at a time. Setting up a test in a demo account now. Will update later.
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