From: nomads9@hotmail.com (GoldTrader)
Newsgroups: misc.invest.futures misc.invest.stocks misc.invest.real-estate aus.invest uk.finance
Subject: Re: What is pyramiding?
Date: 19 Feb 2004 02:05:50 -0800

Spread Trading: Averaging Up

Pyramids are built by adding to your winners by stacking or
pyramiding.

My teachers had just gone thru hours of instruction in the Why, How
and Wherefores of diversification.  I could clearly concede that you
don't want to buy anything without two of something else to balance
it. Then Mr. Kroll off handedly said something like. Of course, when
you find one that is really moving, you have to go for it.

Then they proceeded to explain stacking, pyramiding and averaging up.

In our Spread Trading, we are experimenting with averaging up at the
end of the week, when we hit a new high during the week.  We are
trading on new weekly highs in the Seasonal window.

Here is the logic.  When we have a security rising steadily, on
average we expect a little incremental increase daily.  So if in a
perfect world the effects of increasing supply effect contracts for
delayed delivery differently.  Then we would expect the trend to
continue during the week and over the weekend, 24x7.

If this held true we would be closing on the high of the week and each
week would close higher than the previous week.

All of us do not trade for the same time duration.  Short-term traders
have to be out at the end of the week so that they do not have to put
margin at risk over the weekend.  So, we tend to see the uptrend
confirmed by a little profit taking on Fridays close.  These traders
were on the same side of the spread as we were, so liquidating causes
Friday's close to move slightly counter-trend.

Our very purpose for being in this game is to harvest premiums for
providing additional liquidly when it is needed.

First, we have the break out of the previous weeks high suggesting
continued momentum in the direction of the seasonal trend.

Then we have the additional premium from off setting short-term
traders, assuring us that we will not have to chase the market to be
filled.

Third we have the built in market forces working in our favor for
three days from when we get our fill on Friday to the next market
close on Monday.  Grain is still growing, the world's hunger still
eating.

Combine this with the increasing equity from last week's position and
you can see why we consider averaging up at the end of the week when
we hit a new high during the week.

"When your security is acting right, you can safely add to your line
from then forward!"  Jesse Livermore

>>> Pyramiding www.nqoos.com/Articles_and_Reprints/jesse_livermore.pdf