The Position Cost Averagingtm
theory, based on mathematics, captures stock volatility and uses it to the investor's advantage. It signals the action by giving the exact price and number of shares to buy or sell ahead of time. It can also used to "size" trades for the purpose of lowering cost per share. PCA is predicated on maintaining a cash reserve, which will be fluid and adjusted over time. The idea is that when an investor decides to take an initial position in a carefully selected equity, only a portion of the allocated capital is committed to the equity at the outset. As the price fluctuates, portions of the cash reserve are strategically deployed on dips and profits are locked-in on rises and upward spikes. In some cases, a rising stock can fully fund the cash reserve from the outset, however the system will not issue buy advice if there is not enough cash in the reserve to cover the suggested trade.
Small gains are methodically taken as prices are rising and additional shares are accumulated when prices are low.
The purpose of this incremental adjustment in the amount of stock holdings, is to determine the level of equity exposure based on the price action of the equity itself.
The method can best be described as trading around a "core position" in a stock. PCA will constantly re-balance the cash and equity in the holding based on the changes in price.
The total return on PCA is a function of the stock fluctuation, initial investment, and minimum trade amount. This method of strategically deploying your cash into a stock and adjusting your exposure is coupled with a compounding formula to produce extraordinary investing profits on individual stocks.
Programmed to buy low and sell high, the Position Cost Averaging formulas were designed to perform over a long period of time and over many market cycles. The system is designed to be a "fixed cost portfolio", meaning that the user will never have to add more money to the holding. In some cases, on a stock that falls dramatically, the cash reserve will get completely used up and the investor does have the option of adding more cash to fund additional purchases.
The PCA System gives very specific signals on how much stock to buy or sell at any given time. You can determine exactly where your target prices are by simply entering prices into the system and selecting to find the hold range. Everything is based strictly on each user's individual situation and the subsequent action of the stock. PCA does not take fundamentals, news, or rumors into consideration, but generates it's advise based on the percentage change in stock price.
This system is essential for determining at which points it is prudent to "average down", and at what levels it is wise to "take some profits" with the goal of systematically increasing the portfolio value.
Stock selection plays a crucial role in the performance of a Position Cost Averaging system, and is one of the few subjective criteria in a system designed to be completely objective. Since we can see that the system is proven to turn $10,000 into over $1,000,000 in 15 cycles of a sine wave, our objective is to find stock that have patterns that are as closely correlated with this pattern as possible. Stocks that are volatile on an up and down basis are preferred. As with any investing strategy, diversification plays a key role in the overall risk assumed. For this reason, it is advisable to have multiple holdings in the system.
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