although earlier one question has been answered well by Madan, i am looking for more detailed information
Hello If you can get this journal "Constant-collateral pyramiding trading strategies in futures markets" by Stan Miles. Then it may so some help to you.
thanks though its not in print anymore, any links for pdf?
It’s often said that if you perform a task in a hurry, you might end up screwing it up badly. Imagine yourself sitting on your balcony day having a hot cup of coffee. If you take big gulps, you will end up getting yourself badly burnt, instead, you prefer to take small sips and savour the taste.
You should adopt a similar strategy when looking for growth investments. If you come across a stock with great technical and winning potential, do not jump into it all at once. Although putting all your money can seem like a lucrative option, you are also putting yourself at a greater risk.
Take a ‘pyramiding position’. Start by using a portion of your allotted capital for the initial trade, and then slowly build up into a full position as the stock rises. It will help you greatly reduce your risk.
Pyramiding involves making multiple purchases to solidify your position. You can divide your purchases into three instalments.
Pyramiding involves making multiple purchases to build your position. You can divide your purchases into three instalments.
For your first buy, use half of your maximum capital that you would allocate for a single stock investment. So, if you have Rs 10,000 to invest, use Rs 5,000 for your initial position. Start things off right by buying a leader once it goes through the proper buy point of a good base in volume that’s at least 40% above average.
Only buy more shares if the stock moves 2.0% to 2.5% above your initial purchase price. If it does, use 30% of your allotted capital for your second buy. Now you’re 80% invested. If the stock goes up another 2.0% to 2.5% from your second buy point, use the remaining 20% of your allocated capital for your final buy. Now you’re fully invested and the stock is acting right.
Pyramiding is smarter, as you’re putting more money to work only after a stock has proven that it can go higher. What you are essentially doing is averaging up, the opposite of averaging down. The latter is often a losing proposition.
For more insights and stock market tips for beginners, source: https://www.marketsmithindia.com/