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The proper way to pyramid into a position...
- Thread starter mgregor
- Start date
just look at Nikkei.Originally posted by dozu888
But aren't a lot of traders doing the same thing? pyramid into a position should have NOTHING to do with if you have a profit in the trade or not. You might feel you are playing with the market's money (the open profit)... but the fact is, open profit is profit, it is YOUR money now, not the market's.
Although there is no or little statistical advantage, pyramiding does provide psychological advantage to some traders because of the cost-based mentality, as they feel they have a 'free position' to work with.
Hope I made my point clear.
Dozu,
I may be one of those bozos that does feel like there's a difference between capital and open profit! If I can raise the reward of a trade while keeping the risk constant, I'll do it anytime. I don't pyramid often, but when the chance presents itself, I do. If I am playing a retracement, say, and the trade breaks a 52wk high, I pyramid. It is a "new" trade in a way. Now I am banking on the 52 wk high being broken. But I am also banking that the previous trend that I way in will continue, so in a way it is not a new trade.
Sure the market's money is my money. But as you say there is a certain psychological difference that cannot be denied.
I don't mind doubling up. But I'd never double down.
Wet
Pyramiding up has never made sense to me. If you don't have enough shares, bite the bullet and play a half position. 90% of the time, the market is in a range. Averaging up only gives you more shares at worse prices (most likely at the top of the range). I like to swing trade. The more oversold it gets, the juicier. So I average down. I have been in some positions down 15k + and not even been concerned. I don't enter large positions unless I'm VERY confident. Paying up just doesn't make sense.
As for painting the tape, I'm often big enough on my large positions to be semi specialists. I like to make a pretty chart picture. The specialist likes it too. If I'm on the same side as the specialist, we'll work together. I can remember many trades where someone kept putting out 100 shares on island .2 above the offer so I could take them. Then when the offer went up, he'd put out 100 more. He was just hoping I'd take them and make the chart look pretty. Just like when a stock is rising too fast, you often have to sell to slow it down so it doesn't get toppy, but instead consolidates for another half point breakout. I play illiquid things large at times. A 5k roadblock on something trading 300-500k avg daily will do that.
Look at LAB the day of the reversal. I started the move up. I broke it out of an intraday channel on a 5k market buy. I then showed large sized bids and chased it up a quarter. At that point, the real buyers panicked into it long, and the specialist who was long just moved it ahead of the buyer once he showed his true intentions.
As for painting the tape, I'm often big enough on my large positions to be semi specialists. I like to make a pretty chart picture. The specialist likes it too. If I'm on the same side as the specialist, we'll work together. I can remember many trades where someone kept putting out 100 shares on island .2 above the offer so I could take them. Then when the offer went up, he'd put out 100 more. He was just hoping I'd take them and make the chart look pretty. Just like when a stock is rising too fast, you often have to sell to slow it down so it doesn't get toppy, but instead consolidates for another half point breakout. I play illiquid things large at times. A 5k roadblock on something trading 300-500k avg daily will do that.
Look at LAB the day of the reversal. I started the move up. I broke it out of an intraday channel on a 5k market buy. I then showed large sized bids and chased it up a quarter. At that point, the real buyers panicked into it long, and the specialist who was long just moved it ahead of the buyer once he showed his true intentions.