"Averaging up" or pyramiding is something I've done for a long time, with mixed results. I agree with both sides of the discussion here.
When price action is directional, aka we're trading trend moves, pyramiding is an excellent way to add leverage without risking too much base capital. Once a trade position enjoys unrealized gains, pyramiding new positions uses that capital as risk if price action stalls or reverses. Works great when directional swings or trends are captured.
On the other hand, unrealized gains are the stuff we convert into realized gains. Risk too many of them in sideways price action, and the net result will be no gains at all.
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When trading the ER (NQ is equal) on longer-term intraday charts, I used to catch some solid moves for big gains when scaling in. For example, long one unit at 700 and long a second unit at 703 / blended average 701.50 could be exited at 705.50 for +4pts gain per unit. Contrast that to one unit exited at 705.50 and you see the power of addition. More than once I exited doubled-up trades for +8pts ~ +10pts ER in the afternoon plunges or parabolic squeezes. Very sexy $$ when everything clicks.
However, there are also times when the same play will stall out at 703+ and come right back to 697. Any attempt at holding a blended stop or staggered stops is wiped out. The original entry at 700 could have trailed out for at least +2pts in contrast. Meanwhile, the pyramided play stops out for par at best or even net-loss overall.
Pyramiding into positions is an excellent tactic when the overall goal is to catch directional moves. The tradeoff is accepting reality that many small to medium-size profit moves will result in par to net-loss exits. In essence what we're doing is hunting the bigger moves with bigger size.
That's the fun part. The tougher part is trading thru sideways or muted conditions where numerous trades go far enough to offer solid profits on the initial entry, but pyramiding in risks that unrealized gain which then turns to loss.
No question, pyramiding always causes a more volatile equity curve. The big gains are profit spikes, while the sideways price action periods will result in no gain to net loss instead of small gain / no loss results on single entry tactics.
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Now that I'm focused on the ES primarily, pyramiding is a detriment. The ES specifically is much more jagged and choppy than ER/NQ symbols. Many times I've tried to work pyramid plays in the ES that chop out for loss in deep pullbacks whereas the ER/NQ would have held stops and continued deep into profits.
The ES backs & fills much more than ER/NQ do. Trying to aggressively play straightline moves in the ES has resulted in net-loss sessions for me where simple entry/exit on every trade would have been highly profitable.
In other words, the end result had zero to do with trade entry method tactics. Pyramiding is actually a trade-management = money management method, has nothing to do with the entry signal aspect of trading. Trade management methods are of course critical to profit or loss results of any trading approach.
As for me, I've realized that straight entry and exit tactics for my style in the ES works best. I'm pretty sure the same would be true in ER/NQ as well. In the past I stopped out of numerous +2pt ~ +4pt moves off initial entry that stalled right at the second position entered and reversed five miles against the first entry. Trying to get cute with blended stops, staggered stops, etc is one more factor to deal with that just ain't worth it for me.
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I'd opine that pyramiding in is an excellent component for true trend / directional traders. If someone decides that their overall objective is to capture the big moves, they already decided to forsake the small and medium moves.
That's the reality of trade management: we cannot exit every trade optimally. We either trade for small = medium profit swing and accept occasional big profit moves, or we trade for the big ones and accept many losses, pars and occasional small profit trades in between.
Scaling out is likewise not a solution for both. Scaling out partial positions for small gain, medium gain and large gain in pieces only serves to average out at medium gains every time. The exact-same result will be had by going all-out at medium gains in the first place. But... that heated topic has been hammered to death elsewhere in this forum.
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Bottom line? Traders hunting bigger directional moves can benefit from scaling in / pyramiding tactics. Even big players like $RM who must enter less-liquid stocks in pieces due to order size alone have already decided they are not scalping out in the first place. If one's objective is to trade by entering AND/OR exiting in pieces, the decision was previously made to hunt for bigger swings.
For me specifically, trading the ES(ER) going all-in and trailing stops all-out for profits of +2pts, +3pts, +4pts and occasionally +5pts ~ +8pts or greater is less work. I have fewer things to think about that where & when to add, how to manage blended stops, etc. The focus can be directed solely toward which of several ideal entry points to work and then focus on management = exit method from there.
Like any aspect of leverage, pyramiding is a dual-edge sword. It cuts unrealized profits to loss, or conquers directional moves aptly captured for big rewards. Just part of an overall trading approach focused on directional - trend moves targeted.
