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# Pyramiding

Discussion in 'Strategy Development' started by livingston777, Jun 1, 2009.

1. ### livingston777

Could use some info here:

Letâs say I bought something at 413 and it is now at 443.

I have a stop for the original contract at letâs say 416 and want to add a second contract at 439 with a stop for the second contract at 428.

How does this new contract and new stop affect the original contract and original stop? I believe it is called âfirst in first outâ but I am having trouble finding something that explains this.

Thanks.

Pyramiding sooner or later leads to margin call.

3. ### MandelbrotSet

The first thing you have to do is get your average price:

So, (413 + 439)/2=426. This is your average price, and so long as the price of the "something" that you boght remains above it, you have a gross (Open) profit.

If you set your stop at 428, one of your contracts will be stopped out when your stop is hit. The remaining contract will still be in force, and your (Open) profit in the trade will be adjusted according to the following formula:

439-428 = -11.
413+426 = +13

So, total net profit if your stop is hit would be +2, vs a total net profit of +30 if you closed the trade right now.

***

If you are indeed currently in this trade, IMHO you should close it at an extremely healthy profit and look for other trading opportunities. Or if you are an investor, you should just look to hold it for whatever time frame you are using to invest.

You can look at using pyramiding strategies in the future, for future trades, but too much time (and price) has elapsed on this one, and it probably isn't the best idea to pyramid with so much profit already in the trade.

In the future review multiple scenarios in a spreadsheet so that you will know exactly what your options are when it comes time to trade.

Good Luck

4. ### stevegee58

Pyramiding, or "reverse scaling" is actually a good way to build a larger position as price moves in your favor. It's far better than traditional "scaling in" where you build a larger position as price moves against you. i.e. adding to a losing position.

5. ### livingston777

Thank You. That is about what I thought but it is good to know what your getting into before you do it.

IMHO? Not sure what that is.

My time frame is about a month and there has not been much time so far that has passed, in my opinion. My target is also rather higher than the numbers discussed.

Best.

6. ### MandelbrotSet

IMHO = In My Honest Opinion

***

That type of long-term position trading isn't found very often on this board, where many trades are measured in 15 minute units of time (or less).

But regardless of the time-frame used, price action is uncannily consistent in its behavior, so if you're still interested in this trade after taking a profit (always good) you can just get in on the retrace, or look for another candidate.

7. ### MandelbrotSet

In the book "The Way of the Turtles" Curtis Faith talks extensively about the the trading techniques used (breakout), money management algorithms (% of risk), and pyramiding techniques (stacking based on % of price movement) used with great efficacy by the original Turtle Traders.

I highly recommend that you purchase the book and study it's techniques if you are interested in using pyramiding as a technique for your trading success.

The Way of the Turtles

8. ### athlonmank8

LOL. WOW. Averaging up leads to a margin call?

You have to be the biggest fucking dolt on this site.

I thought I'd never see the day......just wow.

9. ### livingston777

That was the plan but I may have missed my second entry by wanting to understand what I was getting into first. So, now I am looking at other ideas... If it retraces to the same point again it is prob for the best to leave well enough alone.

PS I like the spreadsheet idea. Thx! And, I did read the turtles. Now that you mention it there is prob a page in there with exactly what I am looking for.