Pyramiding

Mr Euro

Junior member
25 0
Many successful traders advocate the use of Pyramiding into a position. The logic being if you have misjudged the environment initially why would you want to commit more funds to your position? Another advantage is it allows you to accumulate a stake rather than having to take prices lower down the book.

On the downside you potentially miss out on an initial couple of points if you are correct?

I’m in the main a very short-term trader (seconds to a few hours), rarely positioning, as I don’t like to hold over night in the current environment. My normal position size is 10K shares in high beta sets stocks (AVZ, BARC, LLOY …) , a large position would be 40K shares. Pyramiding does allow me to build the position as even FTSE beta’s like AVZ & SDR/C are not all that liquid.

In practice pyramiding is probably more suited to a position/swing trader rather than a scalper. Do any short-term traders use this approach or have you considered/evaluated it? Theory is one thing practice is another.

Apologies if this has been debated before, I could find no reference.
 

Mr Euro

Junior member
25 0
Thanks Bonsai, I'm still getting used to the board :) Have read the thread and I still don't believe the approach was fully evaluated/concluded.

Here is a practical example of where the method just saved me some money.

Hadn't traded this morning as it's easy to be on the wrong side being so choppy. There's something about Monday mornings and losing money :)

Anyway, I stock I follow closely (AVZ) has been very weak for a number of days due to a couple of reasons (market share concerns and the slight pull back), having broke 410 this morning I was pretty certain we would test the next major support (around 402) and if we broke below 400 who knows. I decided to pyramid in and only shorted 2000 shares with a view to accumulating in two addition shorts totalling 10K shares.

What happened? After touching 408 we are now at 417, I closed at 412.


Hmmmmmmmmm.

Edit - Re-entered and now short (3 trades 10K shares) at an average of 416.5. It bounced on small numbers and has hit 100 day MA. Looking for a first stop of 410 ish (S1).

This is caracking trade IMHO. SL at 418.5 (just above 100dma), fresh air below and MACD cross. Nice risk reward and ask I type the price is moving.

Closed for a small lose, don't like the RSI, could have turned.

Thought something didnt smell right, rumours of directos buying this morning.

To conclude this trade, the price is now at 406! There's a lesson there somewhere. Not too concerned, had a mammoth trade on ICO making $1.20 in one minute.
 
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CityTrader

Established member
665 26
Mr Euro - quite interesting- I seem to remember one of the guys in Market Wizards ( Richard Dennis?) believed that he would rather sell at higher prices as it was a better trade- but of course you need total conviction that your original trade was/is correct.
Personally I subscribe to the " never add to a losing postion" school of thought, and as such, if I have a position open that's costing money, as soon as in enter a positive p&L, I will pyramid by adding a smaller amount at a worse price than the original trade.
But then Richard Dennis had/made an awful lot more money than me! ( whatever happned to him? didn't he give up trading to enter politics or somehing?)

Wayno
 
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