Stock Strategy: Pyramiding

I came across this term in TAP by TH. At first, I really didn't understand it since I am a newbie (still a newbie until now). However, while test trading and incurring huge losses, I began to grasp what the group wanted to teach despite of all the bashing, blaming and noise.
 
According to TH, formula is Build Bodega Volume + Buy on Breakout or RPP + Add Volume on the Trend + Watch as it goes higher ( for needles or double tops) + use Trailing Stops. Then just watch it as it goes higher and set trailing stops higher. To make money this way, you need sustainable risers for 12 months to 24 months, if not more, depending on the wave before you. You cannot pyramid quickie #bargirl  rides that are volatile because you cannot get volume safely.
 
Meaning:

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.



The second example is an inverse pyramid where you make a small bodega then add more when the price goes up. Both strategies have a positive result (a gain is a gain); however, the first one is much better.
Source: TH

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.


For more references:

http://www.learntotradethemarket.com/forex-trading-strategies/pyramid-money-management-strategy

http://www.investors.com/how-to-invest/investors-corner/how-to-invest-in-stocks-pyramid-into-a-winning-position/

http://www.investopedia.com/articles/trading/09/pyramid-trading.asp

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