Stock Strategy: Pyramiding
1) Pyramiding works well in a bull market or in a trending stock.
2) We know that volume is important - the more shares, the better the profit. That's why, as the stock price moves up, we add more shares.
3) However, we have to make sure that we have a good base meaning we have made a 50% bodega already. Why? Because, this affects our average price. As we add more shares at a higher price, our average price goes up also. Example: P50,000 MRP. % allocation 50-20-20-10. Inverse pyramiding 20-30-50.
4) With that however, how do we know that we are doing a correct bodega? Well, I myself really don't know whether it's time to bodega or not. TH always say 'instincts and be multidimensional' and since I am a newbie, I practice following my instincts by doing my own research and not getting hyped by others. As they say, "practice makes perfect".
5) Another important thing to note here is setting trail stops or cutting gain/loss stop price. We don't know when the trend will end and as long as it's going up, we just ride on it. However, when you see red candles or bearish signs on the stock, trailing stops should be applied. You can also do pyramiding when selling especially if you are not sure where the stock is headed. Sell in tranches - 50-20-20-10 or 100%. It depends on what you really want to achieve with the stock.
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