HOW TO EARN MAXIMUM PROFIT IN BULL MARKET-BUILD PYRAMID CORRECTLY December 2, 2014 by Ashok Goel·0 Comment In order to trade profitably, you must take a position in the market so that you can make money if the price moves in your favor. But even if you are correct in your analysis of price movements you won’t be able to parlay your profits into more profits unless you have a plan to increase your position. This is why traders pyramid: They need to increase the size of their commitments to make bigger profits. In pyramiding, you are looking for opportunities to add more positions with minimal risk to your total equity. Most successful pyramids have been created during massively bullish markets. Few speculators have been able to pyramid successfully during bear markets.As the bull market unfolds, the speculator has the opportunity to buy more positions in the direction of the trend. The basic rule of pyramiding is never to allow any subsequent position that you add to the total position to get so large that if there is a retracement the total profits are wiped out when your stop loss order is executed. When you decide to pyramid in your next campaign, you must decide whether you will add positions in equal or varying amounts. From my ownexperience I know that adding more positions but at lessening numbers is the correct way to approach pyramiding. Pyramiding in equal amounts of contracts or shares can also produce surprisingly good profits, but this requires a bit more analysis. There are basically three ways to pyramid your total positions: inverse, normal, and averaging to market. The inverted pyramid is the correct way to approach pyramiding. Your initial position must always be the largest position of all your total traders; as more positions are added, each successive addition must be smaller than the previous ones.The mechanics are as follows: Purchase no. price NO> of Shares Amount Average Price 1 Rs.75 300 22500 75.00 2 Rs.80 150 12000 76.67 3 Rs. 85 75 6375 77.86 4 Rs. 90 35 3150 78.62 5 Rs.95 25 2375 79.32 6 Rs.100 15 1500 79.83 TOTAL 600 47900 The second approach, that of pyramiding in equal amounts of shares, can also result in good profits. However , there is an inherent weakness in this normal pyramid relevant to the inverted pyramid, as given below: Purchase no. Price No. of Shares Amount Average Price 1 Rs.75 100 7500 75.00 2 Rs.80 100 8000 77.50 3 Rs. 85 100 8500 80.00 4 Rs.90 100 9000 82.50 5 Rs.95 100 9500 85.00 6 Rs.100 100 10000 87.50 TOTAL 600 52500 The inverted pyramid resulted in a total position of 600 shares at an average price of 79.83. Total cost of 600 shares was Rs.47900. In a normal pyramid a total position of 600 shares was also accumulated, but at an average price that was a higher than in the inverted pyramid. The average price was 87.50 per share and the total price commitment was 7.67 higher per share, and the cost for the same number Read more a2analysts/
Posted on: Tue, 02 Dec 2014 06:51:08 +0000
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