Pyramiding into a trend

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)?
 
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
 
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