Registered User
Joined: 2/13/2005
Posts: 368
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How many of you "pyramid" into a trade. It is something that I am trying to get better at.
For those of you that don't know about pyramiding, basically, you start off with a smaller trade size and if the trades moves in your direction, you buy more.....
For my Tradestation momentum trades, I buy on a direction reversal (double/triple ETF's) and add to positions as positions go in my favor.
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Joined: 6/24/2006
Posts: 15
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I use this as a defensive measure. Like, if I buy a stock and it starts going down precipitously, and I still have faith in my position, I will buy more at a lower price to hege my position. I don't do this a lot anymore because I've gotten pretty good at buying at the beginning of an up trend and selling at the end. That is how I measure the (personal) success of my trades. I understand that hedge funds and institutional buyers use you method of easing in/out a positon (pyramiding) because, obviously, buying 50,000 shares of BA, for example, in one order would not be prudent money management. I usually buy 100 share blocks, so its not a big deal for me. If I buy fewer shares, broker costs will have a big impact.
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Registered User
Joined: 4/18/2005
Posts: 4,090
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I would suggest that you read Daryl Guppys "Better Stock Trading".. excellent simple study of various money management models.. including pyramiding.
Basicaly on a trade that works out the only thing that out performs it is buying all shares at the original point. Not alwayse practical for big traders.
It's psychologicaly tough. And there are occasions where it will turn a winner into a looser. I do it like this.
for longer term holdings (for me that is intended to be a few months.) then as each purchase is clear of my stop and I get new entry signals ABOVE the previous purchase I'll add to it.
I have worked with an agressive version of this that tested well and did well for me briefly before the market plopped. I pyramided daily highs trailing a tight stop.. looking for clean multi day runs for swing trades. Each new lot was 1/2 the previous size and no more than 3% risk. Actualy I traded less because I was working with it. The 1/2 size minimalizes impact of the reversal. in most cases the last lot is likely to be a looser so you don't want it eating up the whole trade.
Pyramiding down is a loosers game as far as i can tell. It's never worked for me and it's in my study really innefficient.
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Joined: 4/18/2005
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DJOlde.
Have ou ever looked into Defensive Puts on your positions?
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Joined: 4/18/2005
Posts: 4,090
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QUOTE (DJOlde)
I use this as a defensive measure. Like, if I buy a stock and it starts going down precipitously, and I still have faith in my position, I will buy more at a lower price to hege my position. I don't do this a lot anymore because I've gotten pretty good at buying at the beginning of an up trend and selling at the end. That is how I measure the (personal) success of my trades. I understand that hedge funds and institutional buyers use you method of easing in/out a positon (pyramiding) because, obviously, buying 50,000 shares of BA, for example, in one order would not be prudent money management. I usually buy 100 share blocks, so its not a big deal for me. If I buy fewer shares, broker costs will have a big impact.
Whole financial institutions have been bankrupted over night like this.... not to mention the sea of traders who washout.
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Joined: 6/24/2006
Posts: 15
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Scottnlena, thanks for you input . As I said, I don't use this method very often and only if I am confident with my position. For example if the Dow & S&P are both trending up and volume is good, but, for some unidentifyable reason, the stock heads south, I will sometimes buy more if indicated. The knowledge that if a stock loses 25% value, it takes a 50% increase in price to make up for it is something that I learned the hard way.
I do not know how to use puts and calls. I've only been trading actively for about four years. Perhaps if/when I retire I can expand my knowlege base, but for the time being, I'll just stick with Shorts and Longs.
Thanks for your advice. Good luck and good trading.
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Registered User
Joined: 4/18/2005
Posts: 4,090
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probably wise to stay away from options BUT put simply if you have a position you wish to hold but suspect a slide in price you buy a certain number of Put options.. if the slide dosen't come you close them out if it does coem you trade them like shorting stock.. puts go up in value (usualy) as the price slides.. then at what ever point you cash out the puts and use that cash as you wish.
I watched a thing where a guy did this twice for an intermediate term hold using a guppy type entry model .. buying the pullbacks (so long as it didn't pullback to a point of loss) and using proffit from the protective puts to buy more stock in the original issue. Prices recovered and later he did it again.. mand HUGE money on what would have been a smaller trade.
Just be carefull pyramiding falling prices. I know the idea and the math on how it lowers cost basis.. but IMO it's illusionary ! It's supper risky becasue reguardless of what ever information we have that give us "good feelings" we could be wrong.
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Registered User
Joined: 2/13/2005
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Scott, thanks for the feedback and info on Guppy, I am going to do some research on his strategies, they look interesting for my type of trading. Regards.
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Registered User
Joined: 4/18/2005
Posts: 4,090
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I've heard negatives about his actual strategies.. they look ok to me.. the issue was the he dosen't fully explain well them.. I never followed them exactly as they were but the mma makes sense to me in that at the compression points a move is likely.. which direction? int he direction of the next major trend direction . The direction hinted at by indicators? That's a whole different issue.
the book above isn't so much on strategies but on money management.
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Registered User
Joined: 2/13/2005
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QUOTE (scottnlena) I've heard negatives about his actual strategies.. they look ok to me.. the issue was the he dosen't fully explain well them.. I never followed them exactly as they were but the mma makes sense to me in that at the compression points a move is likely.. which direction? int he direction of the next major trend direction . The direction hinted at by indicators? That's a whole different issue.
the book above isn't so much on strategies but on money management.
He has a new video out on his guppytrader dot com website. It looks good except for some really odd fractal strategy stuff. I'll take a look at it and report back.
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Joined: 4/18/2005
Posts: 4,090
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I didn't see the video.. where was that?
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Joined: 1/1/2005
Posts: 2,645
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QUOTE (DJOlde) The knowledge that if a stock loses 25% value, it takes a 50% increase in price to make up for it is something that I learned the hard way.
DJOlde,
If a stock loses 25% of its value, it takes a 33.33...% increse in price to return to its original value. This is because (1-0.25)*(1+0.3333...) = 1
Thanks,
Jim Murphy
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Joined: 6/24/2006
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TO: Jim Murphy
Thank you, Jim. I stand corrected.
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Joined: 10/7/2004
Posts: 2,126
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Piramiding is as most a double edge sword. You may avoid initial losses if the trade goes against you.
On the other hand, if the trade takes off then you leave $ on the table.
You always get pay for taking risk. All you can control is you ACCOUNT risk.
Defensive Puts? I am assuming you mean Protective Puts.
I see a lot of confusion around here - Are you guys drinking the market Koolaid?
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Registered User
Joined: 4/18/2005
Posts: 4,090
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yes protective puts.. I don't use them but I know about them and what they do.
As far as I can tell in my own observation and in reading Yes Pyramiding has it's negatives and needs to be kept in lockstep with the time frame of your intended hold.
But the scenarios worklike this.
I like stock XYZ and suspect a move from 10.00 to 20.00 and i wan't to buy 800 shares. with a stop 2 points away.
I start with 500, it goes up, at some trigger I buy 200 more it continues to go up.. att he same trigger point I buy 200 more. Then short of my target price stalls and I make an exit. Now .. say the last pyramid was a loss.. should be small the 700 shares are still proffitable and you have gained more than had you just put in 500 and stuck with that.
If you put in 500 and it makes a beline to yoru stop.. your loss is 500 X the distance to your stop, VERSES the 800 X the distance to your stop.
Other wise.. yes there is no argument 800 at initial entry will make more but it risks more also. asumign you buy and get stopped out . There will be some that go far beyond yoru expectations so on those it really worked out.
Is it riskier or not? I dunno.. I think it's a matter of philosophy and personal comfort zones. it would appear based on numbers of larger samples of data that it's the next best thing to going all in to a position while limiting yoru risk.
This woul make sense for Trend followers who intend to hold a position for a considerable period of time and expect that any given trade will MOST LIKELY be a looser and if not is likely to slide aginst them at some point in the hold early on..so price must prove to us that it is headed higher.
This is how Richard Dennis did it, Darvas did it, Livermore did it and a whole slew of others. I've done it intra day and when it works it realy works.. and when it dosen't it's true it's a double edged sword. It seems mathematicaly that for the disciplined investor it can take a strategy that generates mostly loosing trades and make it a winner if it has a long enough hold time line..
In the case of the Turtles time line was infinate so long as price continued inthe desired direction and did not violate the stop out line.
Oh I had a pyramid work out on the short side recently.
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Joined: 12/2/2004
Posts: 1,775
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QUOTE (thekubiaks) How many of you "pyramid" into a trade. It is something that I am trying to get better at.
I pyramid on most of my positions and have found it to be an excellent tool for my method. The key is that the second and third buys should not exceed the first buy by more than a singe digit percentage move. William O'Neil of IBD likes the first buy to be 1/2 the position, with the second and third buys about 1/4 each on average, all within a 5% range. For example, stock XYZ trades at 20; first piece is 100 shares at 20, second buy is 50 shares at 20.50, third buy 50 shares at 21. I use his method sometimes, but just as often will make 3 or 4 buys all the same size.
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Joined: 4/18/2005
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On longer tem holdings of mine I'll pyramid.. latley it's been a way to steel defeat out of the jaws of victory.
Fprty, I';m curious to know how the all the same size works out on average?
When I do it I do it like this.
My initial risk says to buy 200 shares. So initial purchase if 100. then next purchase is between 50 and 75 and the remainder is 1/2 that.. usualy I don't get the whole 200 because I fugure the R:R on the original calculation is degrading so it's ok to not get the full position on. I try to however.
the ideal would be 100, 50, and 25.
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Joined: 12/2/2004
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QUOTE (scottnlena) On longer tem holdings of mine I'll pyramid.. latley it's been a way to steel defeat out of the jaws of victory.
Fprty, I';m curious to know how the all the same size works out on average?
When I do it I do it like this.
My initial risk says to buy 200 shares. So initial purchase if 100. then next purchase is between 50 and 75 and the remainder is 1/2 that.. usualy I don't get the whole 200 because I fugure the R:R on the original calculation is degrading so it's ok to not get the full position on. I try to however.
the ideal would be 100, 50, and 25.
Hi Scott. Your method seems just fine to me, and very sound. As for my "all the same size" reference where I buy 3 or 4 pieces of equal size to fill out a full position, I honestly can't say it's more successful than the ideal method you mention. As to which method I use on a particular stock, the biggest factor I think is where my initial entry is in relation to the chart pattern or nearest support. If I can get my first buy by timing just right as price signals the first buy alert, that's where I will buy 1/2 for sure. And if price moves so fast that I miss the second buy signal I may end up with only a 1/2 postion. But then I hope for a dip on light volume to pick up more shares, just as long as the dip doesn't go below my initial stop. Most of my 4 buys of equal size occur where I make the first 1/4 buy before a breakout while price is still in congestion, in anticipation of a breakout. If the breakout happens then my second 1/4 buy gives me a 1/2 size very early in the game. I also stated that price moving more than 5% past initial buy is too extended for further adds, but that's in ideal situations only and I don't strictly follow O'Neils teachings to the letter. I will definitely add to a postion sometimes a good bit past the 5% breakout point particularly if price pauses for a few days or weeks and consolidates.
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Joined: 10/7/2004
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QUOTE (scottnlena) On longer tem holdings of mine I'll pyramid.. latley it's been a way to steel defeat out of the jaws of victory.
Fprty, I';m curious to know how the all the same size works out on average?
When I do it I do it like this.
My initial risk says to buy 200 shares. So initial purchase if 100. then next purchase is between 50 and 75 and the remainder is 1/2 that.. usualy I don't get the whole 200 because I fugure the R:R on the original calculation is degrading so it's ok to not get the full position on. I try to however.
the ideal would be 100, 50, and 25.
who do you use to fill your orders?
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