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Pyramiding into a trend

PRIMITIVE OBSERVATIONS:

Do you pyramid? (adding to a position as it goes profitable)

You first need to identify those instruments that trend well. Then you must enter each stage using stops. Could your stops of the first entry dictate the target of the second entry to achieve BE on the entire position, then exit the second entry and let the first ride? This is just a way to think and there are many ways to take profit from the trend. A trader must find THEIR way.

I was thinking if you could measure the character of an instrument through the ATR indicator, then write down your plan before you make your first entry this might help.

Could you discuss your techniques of how YOU pyramid, not what sounds good, but how you implement this in your trading. For new traders this might go aganst your thinking, but I urge you to examine this closer. Some of my most profitable moments have occured when I have used this technique...




ADVANCED QUERIES:

For you more talented ones, could you share how you think? Do you simply float an "always in" postion and simply look at average price while pulling profit out of the trend? Are you able to use this in the chop environment (Consolidation).

I find myself becoming like a Chameleon and rather contradictory at times. As I look at consolidation which some say is 70% of the time then convert my "thinking" to trend (30% of the time) I find conflicts in my "thinking". Could some more experienced ones share?

As long as there is volatility then you could enter anywhere and turn it profitable...isn't this what trading is? This is why being well capitalized is what its all about. yes cut your losses short and re-enter....try try again...many methods and many ways...

Keeping it simple, sure can get complex

Michael B.

P.S. Please excuse my bad habits. I edit my posts well into the 1 hour limit. I put a lot of thought into what I post and read what I write and reflect. I suggest you do the same...Yes you too DB

U won't get many answers here

My guess is that >70% of few active traders on this site do NOT pyramid. Hence the lack of interest on this thread, although it has been discussed on previous threads

You raise important questions. I would hope that experienced traders could share some thoughts on the matter

__________________
Before Mastery - Chop Wood Carry Water
After Mastery - Chop Wood Carry Water

With All Thy Getting, Get Understanding - Solomon

Maverick 1

We shall see. Folks are being kind and I am getting some interesting PM's instead of flames on this thread.

After reading one of the PM's I am truly beginning to wonder if I am sharing at the wrong place. What has ET become? an EGO trip sharing adventure ???? or....a place where we can share, learn and discuss trading? (regardless of what the alter ego wifey say's, hehe or should I say altar ego)

Michael B.

Re: Maverick 1

---

Quote from ElectricSavant:

We shall see. Folks are being kind and I am getting some interesting PM's instead of flames on this thread.

Michael B.

---

__________________
Before Mastery - Chop Wood Carry Water
After Mastery - Chop Wood Carry Water

With All Thy Getting, Get Understanding - Solomon

Re: Re: Maverick 1

No sir,

Not you

---

Quote from Maverick1:

I hope you didnt see my remarks as 'flames', if you did my apologies, was not my intention.

I'll pm you to discuss

---

Yes, it has been discussed a number of times on other threads, but it always winds up being a flamefest, which may be why you're getting PMs.

If I were to get into this again, it would probably be on t2w. Shame, isn't it?

Re: Pyramiding into a trend

---

Quote from ElectricSavant:



P.S. Please excuse my bad habits. I edit my posts well into the 1 hour limit. I put a lot of thought into what I post and read what I write and reflect. I suggest you do the same...Yes you too DB

---

db

Thanks for your kind words. But there is hope for ET. We just need to encourage it...

Michael B.

---

Quote from dbphoenix:

Yes, it has been discussed a number of times on other threads, but it always winds up being a flamefest, which may be why you're getting PMs.

If I were to get into this again, it would probably be on t2w. Shame, isn't it?

---

Re: Re: Pyramiding into a trend

I just want to get your interest and others. My motivations are honorable. Sometimes Db, the best must be persuaded. Please feel free to contribute now that I have your attention.

Michael B.

---

Quote from dbphoenix:

Saves time to do all that before posting in the first place. And why the swipe? Eager to get this thread off to the usual ending?

---

Hi there, long time since we talked. I had to change my alias due to my personal conflict with baron, oh, well ...

Anyway, if it helps, I could tell you that we have tested Pyramiding versus non-pyramiding in our office using more than 50 diff. trending algorithms. The results were showing us that non-pyramiding is better. It has almost all the statistics better then pyramiding.

Cheers.

Re: Re: Re: Pyramiding into a trend

---

Quote from ElectricSavant:

I just want to get your interest and others. My motivations are honorable. Sometimes Db the best must be persuaded. Please feel free to contribute now that I have your attention.

Michael B.

---

Re: Re: Re: Re: Pyramiding into a trend

Db you are truly cheating ET and the readers of this thread of your knowledge. I am sorry and we are the losers (you and I)

Michael B.

---

Quote from dbphoenix:

Why would I want to do that since you've already started making cracks? It's not worth the hassle.

If you want to know how I pyramid, look it up.

---

(i think i know, can't remember, but i know who you are by your post)

Well, I am sorry to hear about your conflict with the administrator of this site, but hey you are still here.

This bold statement you are making shows me the confidence that you have on the varioius ways to pyramid. I think there is a wide spectrum of interpretation that would make backtesting impossible for all scenario's

Michael B.

---

Quote from MAESTRO:

Hi there, long time since we talked. I had to change my alias due to my personal conflict with baron, oh, well ...

Anyway, if it helps, I could tell you that we have tested Pyramiding versus non-pyramiding in our office using more than 50 diff. trending algorithms. The results were showing us that non-pyramiding is better. It has almost all the statistics better then pyramiding.

Cheers.

---

Re: (i think can't remember but i know who you are by your post)

---

Quote from ElectricSavant:

Well, I am sorry to hear about your conflict with the administrator of this site, but hey you are still here.

This bold statement you are making shows me the confidence that you have on the varioius ways to pyramid. I think there is a wide spectrum of interpretation that would make backtesting impossible for all scenario's

Michael B.

---

Re: Re: Pyramiding into a trend

I saw your deleted post db...I simply was telling you about my habits. Haven't you and I previously discussed this? I thought you became frustrated and had to delete your post after my edit. At our age it is sometimes difficult to remember at times...

Michael B.

---

Quote from dbphoenix:

Saves time to do all that before posting in the first place. And why the swipe? Eager to get this thread off to the usual ending?

---

Whatever.

Re: Re: (i think can't remember but i know who you are by your post)

---

Quote from MAESTRO:

We have a staff scientist in our company that was assigned to this task. He used quite sophisticated tools and spent about half a year testing diff. pyramiding strategies. We needed it for our own fund. His recommendations were:

1. Do not pyramid
2. Do not average.

---

Re: Re: Re: (i think can't remember but i know who you are by your post)

---

Quote from jbt:

M - did he test parabolic averaging?
1, 2,4,8 etc?

---

Re: Re: Re: Re: (i think can't remember but i know who you are by your post)

---

Quote from MAESTRO:

I'm not sure, let me ask him.

---

__________________
Before Mastery - Chop Wood Carry Water
After Mastery - Chop Wood Carry Water

With All Thy Getting, Get Understanding - Solomon

Stages of velocity momentum and range of trend

Without revealing what was shared with me in a PM, as I have no right to claim these are my thoughts.

BUT....

trend must be identified in stages...I knew this. But it has been shared with me that it is a tradable valid methodology to use different methods for different stages (the chameleon comment).

Now lets not talk too much about Elliot Waves...but I see a connection.

Michael B.

Re: Re: Re: Re: Re: (i think can't remember but i know who you are by your post)

---

Quote from Maverick1:

Success with pyramiding is conditional on the entry system

Saying that pyramiding doesn't work without defining the entry system against which the pyramiding was tested doesn't seem to be a sound proposition, logically speaking

---

Re: Pyramiding into a trend

---

Quote from ElectricSavant:

PRIMITIVE OBSERVATIONS:

Do you pyramid? (adding to a position as it goes profitable)

You first need to identify those instruments that trend well. Then you must enter each stage using stops. Could your stops of the first entry dictate the target of the second entry to achieve BE on the entire position, then exit the second entry and let the first ride? This is just a way to think and there are many ways to take profit from the trend. A trader must find THEIR way.

I was thinking if you could measure the character of an instrument through the ATR indicator, then write down your plan before you make your first entry this might help.

Could you discuss your techniques of how YOU pyramid, not what sounds good, but how you implement this in your trading. For new traders this might go aganst your thinking, but I urge you to examine this closer. Some of my most profitable moments have occured when I have used this technique...




ADVANCED QUERIES:

For you more talented ones, could you share how you think? Do you simply float an "always in" postion and simply look at average price while pulling profit out of the trend? Are you able to use this in the chop environment (Consolidation).

I find myself becoming like a Chameleon and rather contradictory at times. As I look at consolidation which some say is 70% of the time then convert my "thinking" to trend (30% of the time) I find conflicts in my "thinking". Could some more experienced ones share?

As long as there is volatility then you could enter anywhere and turn it profitable...isn't this what trading is? This is why being well capitalized is what its all about. yes cut your losses short and re-enter....try try again...many methods and many ways...

Keeping it simple, sure can get complex

Michael B.

P.S. Please excuse my bad habits. I edit my posts well into the 1 hour limit. I put a lot of thought into what I post and read what I write and reflect. I suggest you do the same...Yes you too DB

---

interesting

Interesting instead of pattern recognition you let the price tell you.

Currencies would be valid instruments, I would think. (believe it or not the exotic currencies are undiscovered for this) Shhhh..dont tell anybody how those suckers can trend...

Michael B.



I use pyramiding extensively. Over a period of time I have experimented with many things and now settled on few simple rules.
1 There is a pre determined 3 pyramid entries if the first entry becomes profitable within the first 25% of the move
2 After position has 100 % or more profit from initial entry, I again pyramid three times if it has a 60 day breakout on high volume.
After adopting pyramiding three years ago,overall profitability of system has increased substantially. But crux of my system is based on vehicle selection so if my vehicle is right pyramiding allows me to milk the trend much better .

I am not familiar with the term pyrmiding, but it certainly describes my style.

I am in the market almost constantly, and check it probably 4 - 8 times a day, depending. I keep pretty tight stops, moving them 3 times a day or so; and when a stop for a position has moved beyond its entry point in the profitable direction, I'll usually add to the position.

I use 20:1 leverage, and my preset order size is about 2% of my account.

The signal that I use has been fairly good at indicating changes in the trend on (on a scale of days. I am refining the indicator so it will be accurate to changes in trend that last less than one trading day.)

I trade the eur/usd exclusively, and this style certainly helped me maximize profit. I have been using the current indicator since the beginning of November. In that time, my account now is 14% larger than it was on nobember 5

I would think that pyramiding's success would be dependant on the market (or individual stock) studied. I was surprised that a firm's logician could say categorically that it doesn't work. Particularly in low-cycle commodities like grains (where I got my start), the trend may remain in place for months at a time, when the value doubles or even triples. I'm thinking of corn here.

strangecraft

I eluded to your strategy a little in the opening post. Thanks for sharing. I concur it would be instrument dependant. There are many techniques for pyramiding.

There is a trader AMTSWA that I wish would share in detail his strategy. He is a "floating pyramider" among other strategies, which is fascinating to me...He has an "always in strategy" that he called trades live here, which truly kept me on the edge of my seat...(remember that thread)

Jack Hershey had a technique like this...But I do not know if he is still around and what handle he is using. Ok, he is controversial, so lets not go there. Lets justs pull the good stuff out of everyones posts..

Michael B.

---

Quote from dr_strangecraft:

I am not familiar with the term pyrmiding, but it certainly describes my style.

I am in the market almost constantly, and check it probably 4 - 8 times a day, depending. I keep pretty tight stops, moving them 3 times a day or so; and when a stop for a position has moved beyond its entry point in the profitable direction, I'll usually add to the position.

I use 20:1 leverage, and my preset order size is about 2% of my account.

The signal that I use has been fairly good at indicating changes in the trend on (on a scale of days. I am refining the indicator so it will be accurate to changes in trend that last less than one trading day.)

I trade the eur/usd exclusively, and this style certainly helped me maximize profit. I have been using the current indicator since the beginning of November. In that time, my account now is 14% larger than it was on nobember 5

I would think that pyramiding's success would be dependant on the market (or individual stock) studied. I was surprised that a firm's logician could say categorically that it doesn't work. Particularly in low-cycle commodities like grains (where I got my start), the trend may remain in place for months at a time, when the value doubles or even triples. I'm thinking of corn here.

---

Re: Stages of velocity momentum and range of trend

---

Quote from ElectricSavant:

Without revealing what was shared with me in a PM, as I have no right to claim these are my thoughts.

BUT....

trend must be identified in stages...I knew this. But it has been shared with me that it is a tradable valid methodology to use different methods for different stages (the chameleon comment).

Now lets not talk too much about Elliot Waves...but I see a connection.

Michael B.

---

__________________
Before Mastery - Chop Wood Carry Water
After Mastery - Chop Wood Carry Water

With All Thy Getting, Get Understanding - Solomon

Re: Re: (i think can't remember but i know who you are by your post)

---

Quote from MAESTRO:

We have a staff scientist in our company that was assigned to this task. He used quite sophisticated tools and spent about half a year testing diff. pyramiding strategies. We needed it for our own fund. His recommendations were:

1. Do not pyramid
2. Do not average.

---

__________________
If you're not living on the edge, you're taking up too much room.

thank you

The goal of this thread has been met. Are you folks thinking now, I am...

Michael B.

Re: Stages of velocity momentum and range of trend

---

Quote from ElectricSavant:

trend must be identified in stages...I knew this. But it has been shared with me that it is a tradable valid methodology to use different methods for different stages (the chameleon comment).

---

__________________
"Ask not what your options can do for you, but what you can do with your options." --- OddTrader

Re: Re: Stages of velocity momentum and range of trend

---

Quote from OddTrader:

Very interesting indeed, would you mind to explore the ideas further and share with us?

---

---

Quote from Maverick1:

Success with pyramiding is conditional on the entry system

---

__________________
"Ask not what your options can do for you, but what you can do with your options." --- OddTrader

---

Quote from OddTrader:

... and probably exits, timeframe, etc.

---

__________________
Before Mastery - Chop Wood Carry Water
After Mastery - Chop Wood Carry Water

With All Thy Getting, Get Understanding - Solomon

High frequency?

---

Quote from MAESTRO:

We have a staff scientist in our company that was assigned to this task. He used quite sophisticated tools and spent about half a year testing diff. pyramiding strategies. We needed it for our own fund. His recommendations were:

1. Do not pyramid
2. Do not average.

---

__________________
"Ask not what your options can do for you, but what you can do with your options." --- OddTrader

Pyramiding is as old as the sphinx, since the days of the pharoahs no one has pyramided successfully.....

Just kidding.....

To see if pyramiding is a esstential part of your trading backtesting would be a good way to find out....Pyramiding excessively can occur bigger drawdowns, but once a trend is going your way hugh profits can be produced but finding a trend and riding it out is a different story...because any drawdown bigger than 40% can make a person stop pyramiding....find out what is your tolerance level for drawdowns because only you can answer that question.....

__________________
You lose = I win

.......it's a zero sum game......

Just an evangelist for trading truth.

Re: High frequency?

---

Quote from OddTrader:

For trading with very short timeframes, which probably you do as mentioned by your previous handle/ posts, the above research results would be, I think, a very solid and sound conclusion.

---

__________________
Before Mastery - Chop Wood Carry Water
After Mastery - Chop Wood Carry Water

With All Thy Getting, Get Understanding - Solomon

Re: High frequency?

---

Quote from OddTrader:

For trading with very short timeframes, which probably you do as mentioned by your previous handle/ posts, the above research results would be, I think, a very solid and sound conclusion.

---

Too many factors to consider

---

Quote from forex_king:

....find out what is your tolerance level for drawdowns because only you can answer that question.....

---

__________________
"Ask not what your options can do for you, but what you can do with your options." --- OddTrader

For maximising profits

---

Quote from Maverick1:

The comment above might not hold across all styles, even when short term trading

Listen, you gotta ask yourself the following question:

To succeed at this given my trading personality, is it more important to my proper execution that I:

1) Be more right than wrong?

or

2) Be right more than wrong?

---

__________________
"Ask not what your options can do for you, but what you can do with your options." --- OddTrader

Re: Re: Re: High frequency?

---

Quote from OddTrader:

Without good timing/ sizing for entries/ exits, pyramiding would be (probably very) risky.

With (truly) good entries/ exits, why would we need pyramiding?

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Re: For maximising profits

---

Quote from OddTrader:

Without good timing/ sizing for entries/ exits, pyramiding would be (probably very) risky.

With (truly) good entries/ exits, why would we need pyramiding?

---

__________________
Before Mastery - Chop Wood Carry Water
After Mastery - Chop Wood Carry Water

With All Thy Getting, Get Understanding - Solomon

Re: Too many factors to consider

---

Quote from OddTrader:

Quite right, it's a very important factor to consider, for how much heat we can bear psychologically when encountering adverse movements.

---

__________________
You lose = I win

.......it's a zero sum game......

Just an evangelist for trading truth.

Re: Re: High frequency?

---

Quote from Maverick1:

The comment above might not hold across all styles, even when short term trading

Listen, you gotta ask yourself the following question:

To succeed at this given my trading personality, is it more important to my proper execution that I:

1) Be more right than wrong?

or

2) Be right more than wrong?

---

__________________
You lose = I win

.......it's a zero sum game......

Just an evangelist for trading truth.

Re: Re: Re: High frequency?

---

Quote from forex_king:

Maverick,


Successful trend followers in general are more wrong than right on their entries, what matters most in the end is their risk and moneyment strategies....

---

__________________
Before Mastery - Chop Wood Carry Water
After Mastery - Chop Wood Carry Water

With All Thy Getting, Get Understanding - Solomon

Re: Re: Re: Stages of velocity momentum and range of trend

---

Quote from bali_survivor:

Oddtrader,

We may be out of luck.

Me expects that ElectricSavant is honoring someone's PM and is not saying much more.

Maria

---

__________________
"Ask not what your options can do for you, but what you can do with your options." --- OddTrader

Re: Re: Re: Re: High frequency?

---

Quote from Maverick1:

Agreed. It takes time and a lot of hard work to build a plan and then to learn how to follow it to develop the second nature kind of confidence that takes you to a totally new level. Learning where to place the stop, in and of itself is hard enough, now when you add the challenge of balancing wins and losses, drawdown, avg size of winners vs avg size of losers, etc etc, it gets real interesting to say the least.

---

__________________
You lose = I win

.......it's a zero sum game......

Just an evangelist for trading truth.

Perhaps we need to separate/ distinguish a pyramiding (based upon any incremental and reasonable growth of capital curve) over a trend on top of the initial position, against a scaling-in/out to build up an initial position (without much growth of capital curve), based on our trading plan.

__________________
"Ask not what your options can do for you, but what you can do with your options." --- OddTrader

---

Quote from OddTrader:

Perhaps we need to separate/ distinguish a pyramiding (based upon any incremental and reasonable growth of capital curve) over a trend on top of the initial position, against a scaling-in/out to build up an initial position (without much growth of capital curve), based on our trading plan.

---

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Quote from jbt:

It sounds like everyone has different idea of what pyramiding is. In the sumplest terms is adding to your initial position in hopes of maximizing the continuation in price a good idea or bad one?

Ans. it depends lol

---

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Quote from MAESTRO:

Look, if you buy additional shares (contracts) you make your average price worse. Therefore, you reduce your chances to lock the profits unless the security you are trading keeps on going in the same direction. The longer you are in the trend the greater is a chance of the trend's reversal. So, when it does reverse you might not have time to lock the profits and you might loose as your average price might be close to the current price of a security.

---

__________________
You lose = I win

.......it's a zero sum game......

Just an evangelist for trading truth.

It would be hard, very hard.

---

Quote from jbt:

It sounds like everyone has different idea of what pyramiding is. In the sumplest terms is adding to your initial position in hopes of maximizing the continuation in price a good idea or bad one?

Ans. it depends lol

---

__________________
"Ask not what your options can do for you, but what you can do with your options." --- OddTrader

---

Quote from forex_king:

How much do you put at risk?

10%
5%
3%
2.5%

How much do you put at risk on each pyramided position? Because this is the most important part of the trending process....

....Never risk more than you can afford.....I've heard this many times...but I guess it's a matter of doing.

---

---

Quote from jbt:

Yes when scaling into continuation you have to put in 1/2 as much as your original postion
http://www.amazon.com/gp/reader/007...o.y=13&go=Go%21

---

__________________
You lose = I win

.......it's a zero sum game......

Just an evangelist for trading truth.

---

Quote from MAESTRO:

Look, if you buy additional shares (contracts) you make your average price worse. Therefore, you reduce your chances to lock the profits unless the security you are trading keeps on going in the same direction. The longer you are in the trend the greater is a chance of the trend's reversal. So, when it does reverse you might not have time to lock the profits and you might loose as your average price might be close to the current price of a security.

---

__________________
"Ask not what your options can do for you, but what you can do with your options." --- OddTrader

Re: Re: early advantage additions, do nt be late

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Quote from forex_king:

I personally pyramid position, I won't say how many levels....but after backtesting I can safely say that the number of levels being pyramided has greatly lessened over the years...but I still pyramid, and I have created my own trading system that uses a pyramiding method that fits my personality....but I can say pyramiding does work for me...

---

__________________
murray t turtle,nickname,not an alias

Re: Re: (i think can't remember but i know who you are by your post)

The case for pyramiding (and averaging) is extremely simple and difficult to refute. Let us start with an obvious assertion - one should allocate more capital to very good opportunities than to more marginal opportunities. Then move on to a widely accepted assumption - a >0 number of trades will, at some point before exit, experience an increase in trade expectation. From these two claims we necessarily deduce that at some point in some trades one ought to increase position size - in other words, one should "pyramid" or "average".

I challenge anyone who disagrees to find the flaw in these assumptions or reasoning.

uhuh

"one should allocate more capital to very good opportunities than to more marginal opportunities."

yes this is a nice assumption. Can this situation be identified at the time or is this assumed as well. And how does this relate to the increased risk exposure or the risk of ruin, as position increases after an equity decrease.

simulation work may give more fruitful answers than ill founded assumptions.

__________________
Smile.

I don't have strict rules for pyramiding.

Usualy if i can successfuly catch a higher low (or lower high if i'm short), confirming that the original trend is still going, then i add a little at this moment. I add half of my original position to keep my average price low. New stop is set more tight. Can repeat the process many times if there are opportunities.

__________________
Having no system as a system
Having no way as way

position sizing

In experimenting with position sizing in my own backtesting, I found that you can manipulate the variance, drawdown, and bottom line profits. It's just a math thing. I have never seen the math before, but i'm sure someone's done it (maybe someone can provide a reference). I just tried on a napkin and it got really complicated really quickly. It's gonna take some more thinkin' to work out a simple model.

For my current trading (cherry picking with intraday holding, ~15 trades a month) I just want to max out the profits, since I am not trading so big anyway. In my backtesting I found entering and exiting full size does the trick here. I found to drastically reduce the risk I should take 1/3 off after a little move my way, but this disproportionately reduced the bottom-line profits. Adding came somewhere in between the two cases.

One thing is clear though. An argument without numbers and context doesn't mean a damn thing.

Compounding a position

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Quote from peterfigliozzi:

One thing is clear though. An argument without numbers and context doesn't mean a damn thing.

---

__________________
"Ask not what your options can do for you, but what you can do with your options." --- OddTrader

Re: uhuh

---

Quote from sonnet:

"one should allocate more capital to very good opportunities than to more marginal opportunities."

yes this is a nice assumption. Can this situation be identified at the time or is this assumed as well. And how does this relate to the increased risk exposure or the risk of ruin, as position increases after an equity decrease.

---

Re: position sizing

---

Quote from peterfigliozzi:


One thing is clear though. An argument without numbers and context doesn't mean a damn thing.

---

Changing bet size after winning or losing

Chande's "Beyond technical analysis" has studied the above topic with equity curves and data for a comparison of 4 strategies:
Constant 2 contracts,
Half-on-loss,
Double-or-half, and
Double on loss.

Perhaps defining what's the maximum risk in terms of % capital would be the most important issue above all, in order to avoid overtrading.

__________________
"Ask not what your options can do for you, but what you can do with your options." --- OddTrader

Re: Re: position sizing

---

Quote from Cutten:

.

Once someone realises that trade size should be related to trade expectation and risk at the current market price - and that entry price, "average" price and all that malarkey has no bearing at all on current trade expectation at tht current price - then they are on the road to informed position sizing, instead of relying on half-baked trader lore and guesswork.

---

Re: Compounding a position

---

Quote from OddTrader:

Kaufman in his book "Trading systems and methods" provides some interesting numbers and charts to analyse various types of pyramid methods together with informative risk/ reward ratio and equity curve.

Jones' "The trading game" also analyses it with example data.

---

Re: Re: position sizing

Thank you sir. I have always respected your posts. (yes, I am still here reading every word and every post.)

Michael B.

P.S. average price is merely a float, stops and targets merely measurments of stage. Velocity determines exits.

---

Quote from Cutten:

Whilst numbers are important, often the spur for testing is an idea conceived by pure reasoning or observation. After all, for testing to work well, first you want something to test. A person who is prejudiced against pyramiding/averaging due to flawed assumptions, or someone who does not really understand the logic behind it, will be at a serious disadvantage when it comes to deciding what setups and trading methods to test and then apply.

Just look through this thread and other pyramiding discussions for examples - most posts are just based on old wives tales like "never average a loser" or psychological biases such as "average price" or open P&L. Once someone realises that trade size should be related to trade expectation and risk at the current market price - and that entry price, "average" price and all that malarkey has no bearing at all on current trade expectation at tht current price - then they are on the road to informed position sizing, instead of relying on half-baked trader lore and guesswork.

---

Yes

---

Quote from peterfigliozzi:

That Kaufman book looks very interesting ...

---

__________________
"Ask not what your options can do for you, but what you can do with your options." --- OddTrader

Risk of trend collapse

Guppy suggested in his Better Trading about the above topic to analyse a trend into 4 stages:
1st- Young for always 3 positions,
2nd- Robust for adding 1 to 3 positions,
3rd- Mature for adding 1 or 2 positions, and
4th- Collapse can be sudden or gradual.

__________________
"Ask not what your options can do for you, but what you can do with your options." --- OddTrader

Re: Re: position sizing

---

Quote from Cutten:

Whilst numbers are important, often the spur for testing is an idea conceived by pure reasoning or observation.

---

Re: Re: Re: position sizing

---

Quote from peterfigliozzi:

Roger that. Here's what I'm thinking about now:

(0) You can think of adding/subtracting as separate entries.

(1) Why would you want to add?

Tentative answer (TA): if your original entry is a low probability one (e.g. top or bottom picking) AND you can identify a point of
progress (profit) that IF reached, gives another entry.

(1.1)If you can identify such a point, why not just wait until then in the first place? Or why not just enter full size to begin with, and get out if it doesn't reach that point?

TA: If the low probability entry pays well when it works, pays well in the long run, but can subject you to drawdowns you'd rather not experience, adding on later can reduce the volatility of your equity curve, at the sacrafice of some profits.

Not entering at all until the add point should also make money, just less of it.

(2) Why would you want to take off (1/2, 1/3 etc.)?

TA: If you can identify a point where the your move is likely to be over and take some profits there, you seal some decent profits if it does in fact retrace.

(2.1) Why not just exit the whole position if you've found such a place?

TA: If you have no means for re-entry, you allow for the chance of a further move. On the other hand, if you do have a means for re-entry, it's probably better to fully exit.

(3)What if I can't identify such points or don't want to alter the volatility of my equity curve?

TA: Then don't position-size.

---

Lock and Load

Peter lets examine another thought and Thanks for your post,

2-TIER Primitive Example:

Our hypothetical instrument opens at the price of 6 (one/tenth point increments) and our hypothetical instrument has a current "10 day ATR" (average true range) at 16 points.

We are long 5 units from the open price of 6.00 with a stop @ 4 and a target @ 12 which represents a 1:3 risk/reward ratio (we closed yesterday neutral in the middle of the daily bar)

The price goes up to 6.00 we do nothing.

The price goes to 7.00 we "add to" 3 units (half of original size) So this gives us a stop@5.00 and a target@13.00. The ATR supports this so we have a trade that makes sense and is possible.

Everything is moving fine and glad to have a spreadsheet to quickly figure this out as this baby moves fast. The price gives some distance from the stops and observing that the trend has given a nice big green bar. Hopefully, the trader is asking will it continue? How much do I want? This has advanced so quickly why not take it? Every trader has a different perspective about velocity, this is what makes the market work. I am just pointing out one scenario out of hundreds and the key is to advance your position to Lock and Load. So lets continue.

The price is approaching 9.00 and the pyramid is looking like a good decision as the net position is 8 units and the average price is a blended entry of a Locked 6.40. math: (price of 6.00*5units)+(price of 7.00*3units)=51/(5units+3units)=an average price of 6.37 rounded to 6.40 At 9.00 our net profit without commish is 20.8, but if we just bought 5 units from the beginning at 6.00 without adding too (or pyramiding) we would have 15.0.

But you say wait.... the risk! Ok, lets take it to tier three.

The price is slowing at the price 9.00 your multiple targets and stops are intact. You know your average price is 6.40. Change you STOP ONLY on both trades to BE. Then wait for targets or continue to Load (or "add to") with a BE step after each tier. (even better lock an incremental profit with a BE plus some progressive profit with each tier)

ADVANCED TRADERS

Even on the way down in tier three from 9.00 you could load giving you an excuse to bring in your stop tighter with some BE plus profit. (if it was just a pullback then your winning both ways, as you really do not know in advance which way it is going.) I know, I know this is not conventional thinking...But pleeeease break out of the box!


hope you are not confused.

Michael B.

---

Quote from peterfigliozzi:

Roger that. Here's what I'm thinking about now:

(0) You can think of adding/subtracting as separate entries.

(1) Why would you want to add?

Tentative answer (TA): if your original entry is a low probability one (e.g. top or bottom picking) AND you can identify a point of
progress (profit) that IF reached, gives another entry.

(1.1)If you can identify such a point, why not just wait until then in the first place? Or why not just enter full size to begin with, and get out if it doesn't reach that point?

TA: If the low probability entry pays well when it works, pays well in the long run, but can subject you to drawdowns you'd rather not experience, adding on later can reduce the volatility of your equity curve, at the sacrafice of some profits.

Not entering at all until the add point should also make money, just less of it.

(2) Why would you want to take off (1/2, 1/3 etc.)?

TA: If you can identify a point where the your move is likely to be over and take some profits there, you seal some decent profits if it does in fact retrace.

(2.1) Why not just exit the whole position if you've found such a place?

TA: If you have no means for re-entry, you allow for the chance of a further move. On the other hand, if you do have a means for re-entry, it's probably better to fully exit.

(3)What if I can't identify such points or don't want to alter the volatility of my equity curve?

TA: Then don't position-size.

---

For DB, if you are still here

real primitive observation

Look at your volume spikes and "add to" there.

Folks

My favorite threads are ones that provoke thought. I will not lay this out step by step, just bits and pieces. Re-read my post as to possible uses of pyramiding and yes even averaging down.

Find YOUR way...

Thank you for all the posts from both the experienced and newer traders. I am always learning new ideas and gather Gems from various traders at various stages. Some of the freshest stuff comes from newer traders and their observation skills are keen.

Michael B.

I guess what you are saying is:
you can get bigger and bigger, while maintaining a zero-risk position if you add. This way, you can potentially get one trade over the course of say, a year, which could totally eclipse the trading you've done for the rest of the year (in terms of profits).

And so we are led to yet another poker/trading analogy. This is basically the "grinder" method vs. the "..." method. I don't believe it's been named yet. Let's call it the "catastrophic profit (CP)" method. The grinder method is the usual thing where you have some edge, you make a zillion trades and add up all your nickels and dimes at the end. And wow! It's a million bucks or whatever. This is what most SNG tourney poker players do. However, there was this guy a couple months ago who needed $2000 or something to go on this trip, and he had $500 or something to work with and like a day or two to make it. At his usual tourney level ($30) he figured he could not make enough in time. However, if each time he won, he played in a higher level tourney (which go up to $200 entry fee), he figured he could make it. When he lost that money he would move back down. He did some neat monte-carlo sims to show that it was indeed likely to make a wad of cash in a day. Sure enough, he did it in a day.

Please excuse me

I post in waves as I am working a full time job from home. But I always find time to trade and post in between phone calls...lol.

By the way, apparantly USD has found some support. (yes I am trading Forex in between ET and work)

Michael B.

P.S. I will go over this thread tonight and reply

....

The big picture. There are many ways and this is just one. You got it Peter. Tighten up the example and the winrate increases.

There are so many examples and variables...no time got to go.

Lets end this thread positive...

Thanks Folks,

Michael B.

---

Quote from peterfigliozzi:

I guess what you are saying is:
you can get bigger and bigger, while maintaining a zero-risk position if you add. This way, you can potentially get one trade over the course of say, a year, which could totally eclipse the trading you've done for the rest of the year (in terms of profits).

And so we are led to yet another poker/trading analogy. This is basically the "grinder" method vs. the "..." method. I don't believe it's been named yet. Let's call it the "catastrophic profit (CP)" method. The grinder method is the usual thing where you have some edge, you make a zillion trades and add up all your nickels and dimes at the end. And wow! It's a million bucks or whatever. This is what most SNG tourney poker players do. However, there was this guy a couple months ago who needed $2000 or something to go on this trip, and he had $500 or something to work with and like a day or two to make it. At his usual tourney level ($30) he figured he could not make enough in time. However, if each time he won, he played in a higher level tourney (which go up to $200 entry fee), he figured he could make it. When he lost that money he would move back down. He did some neat monte-carlo sims to show that it was indeed likely to make a wad of cash in a day. Sure enough, he did it in a day.

---

You set 2000$ long on forex with a 100pip loss/200 pip profit target. That means potential 20$ loss or 40$ profits, 2:1 ratio.

Instead you do the same trade with 1000$ initialy with same target of 100/200 pips, adding another 1000$ IF the trade goes your way, let say at +100 pip P/L. (you keep a 2:1 ratio on the "add-on" for the same target profit point, so it will be a -50pip loss/+100pip profit at this point for this half of the position)

That means if the trade doesn't goes your way at the start you lose 10$. If it goes all the way to target you make 30$, having a 3:1 ratio instead of 2:1.

I'd like to see the maths if you do the same, adding say 100$ every +10pips P/L, or 10$ every +1pips......

Yes absolute profit is lower with the same 2000$ position, but so is the risk.

If it goes to the 100 pip profit point where you add 1000$ then goes backward just after, then your fucked.

If it goes all the way down to the original stop, you lose 5$ on the "add-on" (stop @-50pips) and 10$ on the original 1000$, making it a 15$ total loss for a potential 30$ profit, making it back to a 2:1 ratio (worst case scenario). But with the use of trailing stops you can counter that.

So that's what it's used for, to reduce initial risk and to add when you get confirmation signals. But of course it does not increase ROI. The only way for this is to go all-in with maximum leverage right at the start.

__________________
Having no system as a system
Having no way as way

.

Thanks for your thoughts and I like your style How could anybody buy into that crap that sounds good when posting. It's these kinds of posts from traders that actually do it that counts. The old wives tales just simply don't cut it here at ET .

Thanks again Max


Michael B.

P.S. Oh there is so much to talk about and not enough time. There are so many strategies that have nothing to do with pyramiding that I use that work too. I have learned so much here at ET, and I want to share.

So that's what it's used for, to reduce initial risk and to add when you get confirmation signals. But of course it does not increase ROI. The only way for this is to go all-in with maximum leverage right at the start.

Not sure it's

An interesting and closely related thread :
http://www.elitetrader.com/vb/showt...=6&pagenumber=4

__________________
"Ask not what your options can do for you, but what you can do with your options." --- OddTrader

DBPHOENIX IS BANNED

WOW

DBPHOENIX

He will certainly be missed. He had the best threads on price and volume, for me anyway.

I wonder what happened?

This is what I wrote a few weeks ago in another thread:


This struggle mainly comes when I am in a winner and I've just scaled in. This is just an example of a trade I will do (focus on the strategy - the price swings are typical of what I've seen in the types of setups I choose):

1. Stock WXYZ, I'll hit the ask at limit 25.00 on maybe a 10 lot.

2. Enter market stop at 24.70 right away. Price immidiately goes in my direction .10, hangs +/-.05 for 2-3 mins. Price continues to move +.30 from my entry.

3. I'll wait for the retrace try to buy a 20 lot at limit 25.15 and get it, or I'll buy the next base if no retrace.

4. Now comes the challenge - where do I put my stop? I'm in a 30 lot and breakeven would be a stop at 25.10. I will say that 60-70% of the time that stop will hit and hence I will not use it. So, I'll put my stop at 25.00 (note this is essentially turning a winner into a loser if the price moves against me) and this has a 50/50 chance of being hit.

5. If the price continues up to say 25.50 I'll put my stop at the original expectancy - 25.30 and I will try to buy a 40 lot if the price goes to 25.60 and try to buy the retrace 25.50.

6. Full exit stop at 25.30

6. Full exit profit target at 25.75.

The point of that idealistic trade (doesn't work like that very often) is that the stop will give you a loss if you are right, in fact if I use a traling stop I will be breakeven on a winner at best.

I've basically just given away my strategy but note it doesn't work very often and be prepared to feel like you just want to enter a profitable stop/trailing and walk away for the rest of the day until close - which is why I'll often just put in a profitable stop and wish it would hit so I can just walk away and stop destroying my fingernails

---

Consolidation and retracements are not always so easy to see with a low liquidity product (but there is greater momentum potential IMO). I am a momentum trader but more often than not it will turn into a full reversal when you think you are witnessing a retrace, and what was a good profit truns into a B/E using the above strategy.
Lately (just this last week), while in a winner I have not been changing my original stop, just adding to the original stop out price with size as I add to the position. I kept my stop fixed (just adding the added size to it) and my success rate went to 50/50 from a 35/65 as of the weeks prior but I was overall net negative on these type of trades. Note I only do these in trending days but I am probably going back to the original "staggered stop" approach because IMO it is safer. Has anyone done a good backtest on this?

Pick a percentage gainer of 10% or more for the first hour of the trading day and look to go in at 10% then again at 11% and 12% doubling your size each time with a full exit after 13% total gain of the product. Use a staggered stop versus a fixed stop. I have never really done any backtesting but I am wondering if anyine has tried this (or similar appraoch) and what their results were.

Regards,

Mike

Re: Re: Re: position sizing

---

Quote from peterfigliozzi:

Roger that. Here's what I'm thinking about now:

(0) You can think of adding/subtracting as separate entries.

(1) Why would you want to add?

Tentative answer (TA): if your original entry is a low probability one (e.g. top or bottom picking) AND you can identify a point of
progress (profit) that IF reached, gives another entry.

(1.1)If you can identify such a point, why not just wait until then in the first place? Or why not just enter full size to begin with, and get out if it doesn't reach that point?

TA: If the low probability entry pays well when it works, pays well in the long run, but can subject you to drawdowns you'd rather not experience, adding on later can reduce the volatility of your equity curve, at the sacrifice of some profits.

Not entering at all until the add point should also make money, just less of it.

(2) Why would you want to take off (1/2, 1/3 etc.)?

TA: If you can identify a point where the your move is likely to be over and take some profits there, you seal some decent profits if it does in fact retrace.

(2.1) Why not just exit the whole position if you've found such a place?

TA: If you have no means for re-entry, you allow for the chance of a further move. On the other hand, if you do have a means for re-entry, it's probably better to fully exit.

(3)What if I can't identify such points or don't want to alter the volatility of my equity curve?

TA: Then don't position-size.

---

Re: Re: Re: Re: position sizing

good point

---

Quote from easyguru:

You can not look at pyramiding in isolation. The profit expectancy and your holding period and instrument you trade will determine it.
Also not all things you entered using the system would move at same speed, so allocating more to faster moving trend can improve your profit.
If you look at many long term trends, they go much beyond your expectations and there is no way of knowing that in advance but pyramiding can allow you to profit from such rare occurrences and can make your year.
You may want to find out probability of something doubling once it has doubled from say a specific point especially in case of stocks.

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Re: Re: Re: early advantage additions, do nt be late

murray turtle...hehe had to read this several times. There is some wisdom here. bear markets could be tighter I would set with Soloman too. Thanks Job...

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Quote from murray t turtle:

=======

ElectricSevant/mrs;
Yes on pyramid in bull maket,
less in a bear market .

However its done , keeping in mind ,
that say on 15 day average derivative position,
early work is best - do not be late. Late is bad.

Also do it differently in different seasons,
like frost/hunting season.

The plan of the diligent tend only to advantage,
Solomon,trader king.

---

Re: Re: Re: Re: position sizing

---

Quote from easyguru:

You can not look at pyramiding in isolation. The profit expectancy and your holding period and instrument you trade will determine it.
You may want to find out probability of something doubling once it has doubled from say a specific point especially in case of stocks.

---

Price, Volume, and Time. If they sing the Right song, then sing along.

Yeah I pyramid. But not until the story begins to unfold correctly.

One of the things I look for is the moment when the price moves away from the trend. In a rising market, this means that the value begins to accelerate. I want to be in with extra weight as it takes off. So, as soon as the first position is profitable, I move my stop into positive territory and take on another position. When both positions are definitely profitable, I'd move stops again and ad another contract.

Getting out goes the same way. I am constantly looking for signs of reversal or even a slowing market. Usually, last in is first out.

Yes it is true that I am averaging my profits down. It is also true that I am 'riding' a significant portion of the surge up with most of my money active in the market. Yet as we approach the top (and eventual trend reversal) I have less and less in the market.

I don't worry about averaging my profits down. As my teacher said:

"You can't go broke making a profit."

dr strangecraft

Thanks for your thoughts....very understandable. May I ask, do you have some mechanical rules, or is it by feel?

Michael B.

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Quote from dr_strangecraft:

One of the things I look for is the moment when the price moves away from the trend. In a rising market, this means that the value begins to accelerate. I want to be in with extra weight as it takes off. So, as soon as the first position is profitable, I move my stop into positive territory and take on another position. When both positions are definitely profitable, I'd move stops again and ad another contract.

Getting out goes the same way. I am constantly looking for signs of reversal or even a slowing market. Usually, last in is first out.

Yes it is true that I am averaging my profits down. It is also true that I am 'riding' a significant portion of the surge up with most of my money active in the market. Yet as we approach the top (and eventual trend reversal) I have less and less in the market.

I don't worry about averaging my profits down. As my teacher said:

"You can't go broke making a profit."

---

Why pyramid

This is quite a long thread and, although I browsed all the messages, I apologize if I repeat a point.
I don’t quite understand the function of pyramiding?!
I either want to have exposure or not. If I want the risk – then why do it with any less capital than I have decided I want to risk?
I tend to give all my signals equal weight. A long signal is a long signal regardless what indicator/setup triggered it. If I have a (net long) signal, then I want to be long the instrument my entire size (determined by the capital utilization numbers from the back-tests (roughly a function of volatility and time in play)). The only reason I do something akin to pyramiding is to avoid point risk. In a longer holding period model, I’ll spread out my entry to avoid point risk.

I can relate to the seductiveness of the idea of ratcheting up exposure “as it goes my way”, but I believe that this is not optimal capital utilization. Suppose my simple system goes long when the 10 bar MA crosses above the 30 bar MA. My initial size is 10 contracts. Then if after 5 bars I happen to be ahead by say some portion of ATR, I go long an additional 5 contracts, and so forth. IMO, these are two different Long signals that can be evaluated separately and one of them ought to back test better. That is the one that should command an entry of (approx.) all 15 contracts.
I believe that Eckhardt (of Wizards fame) advocates such an approach (my interpretation).

Re: Why pyramid

I think the idea is that on trendy instruments (Forex comes to mind) the initial entry from the signal is taken conservatively, then the trader treats confirming price action with an increased position. Its just another way of looking at it...

Another way of looking at is:

If you have an MFE of 2:1 .......50% of the time...then on the confirmations increase size...Signal strenth is not enough to always go all in...it depends...try it...

Face it...most signals are not 100% and if you can measure it there is validity to a "pyramiding probability model"...PPM (ha! new name, you heard it here live on ET!)

Michael B

P.S. Now as far as averaging down...that is another story...

---

Quote from MAD10:

This is quite a long thread and, although I browsed all the messages, I apologize if I repeat a point.
I don’t quite understand the function of pyramiding?!
I either want to have exposure or not. If I want the risk – then why do it with any less capital than I have decided I want to risk?
I tend to give all my signals equal weight. A long signal is a long signal regardless what indicator/setup triggered it. If I have a (net long) signal, then I want to be long the instrument my entire size (determined by the capital utilization numbers from the back-tests (roughly a function of volatility and time in play)). The only reason I do something akin to pyramiding is to avoid point risk. In a longer holding period model, I’ll spread out my entry to avoid point risk.

I can relate to the seductiveness of the idea of ratcheting up exposure “as it goes my way”, but I believe that this is not optimal capital utilization. Suppose my simple system goes long when the 10 bar MA crosses above the 30 bar MA. My initial size is 10 contracts. Then if after 5 bars I happen to be ahead by say some portion of ATR, I go long an additional 5 contracts, and so forth. IMO, these are two different Long signals that can be evaluated separately and one of them ought to back test better. That is the one that should command an entry of (approx.) all 15 contracts.
I believe that Eckhardt (of Wizards fame) advocates such an approach (my interpretation).

---

Re: Why pyramid

---

Quote from MAD10:

This is quite a long thread and, although I browsed all the messages, I apologize if I repeat a point.
I don’t quite understand the function of pyramiding?!
I either want to have exposure or not. If I want the risk – then why do it with any less capital than I have decided I want to risk?
I tend to give all my signals equal weight. A long signal is a long signal regardless what indicator/setup triggered it.

---

Re: Why pyramid

---

Quote from MAD10:

Suppose my simple system goes long when the 10 bar MA crosses above the 30 bar MA. My initial size is 10 contracts. Then if after 5 bars I happen to be ahead by say some portion of ATR, I go long an additional 5 contracts, and so forth. IMO, these are two different Long signals that can be evaluated separately and one of them ought to back test better. That is the one that should command an entry of (approx.) all 15 contracts.

---

Hmmmm....

Very important aspect to pyramiding is your risk per position. Whether it's position sizing or fixed percent loss to account size.

__________________
You lose = I win

.......it's a zero sum game......

Just an evangelist for trading truth.

Thanks Cutten, you said it much better.

Questiion, if Bill Gates stops to pick up a c-note on the sidewalk, does it cost him money?

This question has nothing to do with this thread or its points, it just Electric trying to make friends with Cutten....

Michael B.

pyramiding

Hi all im new to these forums. Although I have been with trade2winn for 3 years.

As for pyramiding I would say it looks easy on paper but doing it for real is bloody hard, what I would do is put all of your position on at the start of the trade and scale out, there is more chance of being correct on entry. As time passes you are more at risk.

buzz

pyramiding

Hi all im new to these forums.

As for pyramiding I would say it looks easy on paper but doing it for real is bloody hard, what I would do is put all of your position on at the start of the trade and scale out, there is more chance of being correct on entry. As time passes you are more at risk.

buzz

Re: pyramiding

Hello Buzz,

Click the little text in the lower right hand corner "edit/delete" and delete your duplicate post.

Thanks

Michael B.

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Quote from buzz:

Hi all im new to these forums.

As for pyramiding I would say it looks easy on paper but doing it for real is bloody hard, what I would do is put all of your position on at the start of the trade and scale out, there is more chance of being correct on entry. As time passes you are more at risk.

buzz

---

---

Quote from ElectricSavant:

Thanks Cutten, you said it much better.

Questiion, if Bill Gates stops to pick up a c-note on the sidewalk, does it cost him money?

---

Pyramid Skulls

---

Jesse Lauriston Livermore> ÒThere comes the time when he thinks the requisite buying power is there. When that opportunity comes he must seize it.Ó

---

There was a recent post that discussed pyramiding. Try

One problem arises : Will the trade pyramided onto the original trade turn into a loser?

I have spent some time studying pyramiding and realise that the result of pyramiding isn't as straight forward as adding to the expectancy of a system.

It in fact, warps the characteristics (expectancy, drawdown, win:loss etc) of any system it is applied to. Thus, its usefulness is limited to systems where pyramiding would turned it profitable, raise its expectancy or modify its drawdown in your favor.

---

Quote from Remiraz:

One problem arises : Will the trade pyramided onto the original trade turn into a loser?

I have spent some time studying pyramiding and realise that the result of pyramiding isn't as straight forward as adding to the expectancy of a system.

It in fact, warps the characteristics (expectancy, drawdown, win:loss etc) of any system it is applied to. Thus, its usefulness is limited to systems where pyramiding would turned it profitable, raise its expectancy or modify its drawdown in your favor.

---

---

Quote from Gonz:

I've also been researching on pyramiding / scaling entry using multiple methods suggested by my trader friends. Bascially the result is very interesting. Briefly, if pyramiding is done correctly, it will decrease the winning rate but increase the expectancy / profitibility of any logical system trememously.

---

keep it simple

I am very weary of overfitting. I generally treat backtest results as “indications” of market tendencies, rather than more reliable behavioral characteristics. As such, calculating probabilities and expected returns, etc and using these to compare “signal strength” does not appeal to me as being robust.
Including more conditions (pyramiding) to a strategy reduces the degrees of freedom and increases the chances of “fitting to past data” exponentially.
If a signal is sufficiently good to act on – i.e. it makes money (and also makes sense and passes the robustness mustard) then I put the risk on. If it is a “weak” signal then why risk a penny? Beware of a strategy that relies on pyramiding to work (alternatively: beware of the excess results pyramiding generates for a strategy).
As to a second signal confirming the previous “weaker” one: it sounds like you ought to wait for the confirmation in the first place (or you don’t need the confirmation at all – make a choice about which version of the signal can generate better results).

---

Quote from Remiraz:

Yes...pyramiding dampens the win percentage because some of the pyramided contracts/lots will turn into losers and drag down the original trade. Yet those that remain winners will have their win size improved to a large extend.

I would harzard a guess that the longer the trend that are present in winners, the higher profitability pyramided winners have?

Thus is it proper to conclude that pyramiding are most excellent for systems with high tolerance with regards to lose % and expects to ride long trends??

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Re: keep it simple

---

Quote from MAD10:

I am very weary of overfitting. I generally treat backtest results as “indications” of market tendencies, rather than more reliable behavioral characteristics. As such, calculating probabilities and expected returns, etc and using these to compare “signal strength” does not appeal to me as being robust.

---

re

To Cutten’s remark, (I hope I understand and address your criticism)
My backtesting kicks out a variety of performance measures (sharpe, semi-variance, drawdowns, coverage, efficiency, consistency, to name a few). There rarely is a clear winner when comparing simple strategies, since the various performance measures compare/order differently. My solution has been to use judgment in deciding if a “rule” is good enough to trade (based on the overall showing of the various measures). Once a rule passes that hurdle, then it is treated as equal to all others. My (put-my –money…) experience supports that methodology (though more out of sample points are needed to construct a statistically valid inference).
If I did not address your criticism, perhaps I did not understand what you meant and you could elaborate.

eh?

Re “sounds like”.
I am not sure how to put this any simpler.
The two signals are distinct. The first one says “if A then go long”. The second one says “if A AND some move in my direction then go long”.
To me, these are two different signals. Their backtests will have different results. Subjectively, one can decide that (1) the two “rules” offer essentially the same promise or (2) one is clearly superior. My point is that that does not matter! What matters (is not rule superiority (hard for me to effectively evaluate amidst so much uncertainty)) but that one, both, or neither are worth risking capital on. To me that’s keeping it simple (“but not simpler …”

Q
http://www.soyroy.com/murphys_law.htm

11. If you feel like doubling up a profitable position, slam your dialing finger in the drawer until the feeling goes away
UQ

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Re: re

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Quote from MAD10:

To Cutten’s remark, (I hope I understand and address your criticism)
My backtesting kicks out a variety of performance measures (sharpe, semi-variance, drawdowns, coverage, efficiency, consistency, to name a few). There rarely is a clear winner when comparing simple strategies, since the various performance measures compare/order differently. My solution has been to use judgment in deciding if a “rule” is good enough to trade (based on the overall showing of the various measures). Once a rule passes that hurdle, then it is treated as equal to all others. My (put-my –money…) experience supports that methodology (though more out of sample points are needed to construct a statistically valid inference).
If I did not address your criticism, perhaps I did not understand what you meant and you could elaborate.

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Re: eh?

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Quote from MAD10:

Re “sounds like”.
I am not sure how to put this any simpler.
The two signals are distinct. The first one says “if A then go long”. The second one says “if A AND some move in my direction then go long”.
To me, these are two different signals. Their backtests will have different results. Subjectively, one can decide that (1) the two “rules” offer essentially the same promise or (2) one is clearly superior. My point is that that does not matter! What matters (is not rule superiority (hard for me to effectively evaluate amidst so much uncertainty)) but that one, both, or neither are worth risking capital on. To me that’s keeping it simple (“but not simpler …”

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On a bit of a tangent/side-note: took me a long time, but I eventually became a big believer in varying one's bet size relative to perceived risk/reward, and having the bulk of my gains come from a few outsized winners. My emphasis on what constituted a "good" trade shifted from number of points/ticks between entry and exit to how many shares/contracts I could properly add or subtract during the course of the trade -- I wanted the size and duration of my position (something I could control) to become a much greater factor in determining my overall profit, as opposed to market movement (something I could not control). So instead of entering a given setup and just sitting there hoping I'd get "lucky" this time with a big winner, I had to force myself to pull the trigger a second and/or third time to make that possible.

In any case, I've always found it much, much harder to add to a winner than to average down on a loser (which came so naturally), so anecdotally pyramiding into winners just feels "right". For those who trade on the more discretionary side, whether or not to systematically implement pyramiding would depend I guess -- if it's something you find inherently unnatural or difficult to make habit of, then to start off with forcing yourself to add x number of shares/units at x amount of green probably is a good idea, just to get used to it.

And btw, what's the term for the opposite of pyramiding (subtracting size as the trade becomes a loss)?

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I don't know. I would like to think that it is "scaling out". It is not "averaging down" as you are decreasing your position. Actually, reverse/inverse pyramiding might be appropriate but not a commonly used term, that I know of.

HaHa ETer's might call it "Loss Confirmation Minimization" (LCM) to keep it simple..... or how bout' "da, I gotta get some money before I lose it all".....


And btw, what's the term for the opposite of pyramiding (subtracting size as the trade becomes a loss)?

Amazing, had to go back in time to find an intelligent discussion. It's not that we don't have any recent ones but there are very few lately, understatement of the year.

I have to agree with Gonz here, averaging up or pyramiding like it was referred to in this thread aprox 2-3 years ago will decrease your accuracy rate substantially.

It will even play games with your psych factor because a lot of small winners will become break evens, sometimes even small losses. If done right you will never experience a big loss with averaging up/pyramiding.

I average up on every retracement as long as the trend is still strong. Never assume that it will end because it has gone "far too long". We don't have the power to call tops and bottoms unless price action says so.

A few years ago I decided to experiment with this method because I realized risk management was crucial in trading and somehow I wanted to use leverage responsibly. Basically, after the second position I've already locked profits on the initial one and the chain of events continues as the trade keeps going in my favor. When the trend reverses, the losses, small too, are only found on the last add. Trading is about small losses and riding the winners as much as you can, this method promotes that to the highest degree. Not only will your small losses be small in ticks but in car sizes. The downside is that you will have numerous small losses and breakeven trades in comparison to winners but at the end of the day/week/month, it's all about making money not about being right.

A key technique is to use the same stop (a change of a trend ) on all positions and to adjust this dynamically. It is very much possible to lock in profits while averaging up, in fact it's how I trade strong trends, almost on a daily basis, unless I detect signs of too much chop/congestion, then you are better off going all in all out, or scaling out, your choice.

In conclusion, to answer the OP (almost 3 years later) I not only recommend it but consider it superior and powerful money management *if* you got the psychological stamina for it.

Anek

This method is used by a trader I know in the austin, texas area - it is called the "smart accordion" and he has it working good.

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