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Pyramiding is a fascinating topic. Howard Bandy always talked about the need for Position Sizing and Risk Management to sit outside the trading algorithm. I agree with Skate about the critical issue of concentration of returns also risking "concentration of drawdown".

Suspect most of need to focus on proper execution of our system for an extended period before being tempted into complicating matters with variable position sizing. It will probably be quite difficult to get decent statistical verification of any pyramiding or downsizing additions to your system, which greatly increases the chance of curve-fitting or backtesting returns that may far exceed future real returns.

That doesn't mean it can't be done. You would probably need to ensure any future additions to a positions continue to be smaller and smaller, and presumably only after each proceeding position is well into profit.

Another thing to be mindful of is that any long term "multi-baggers" you manage to lock on to should be experiencing compound growth, not linear. The human mind doesn't intuitively handle compounding well, but a stock with say 80% compound growth held for 3 years really does undergo amazing increases in size and profits of course in that final 12 months. (e.g. $15k position becomes $27k in one year, then $49k, then $87k - without tax!). Adding in an extra 50% position at 1 yr, then 25% more at 2 years means final $119k (without tax).

The volatility of price often also increases exponentially towards the end of a multi-year run for a single stock, so you must ensure you have proper stops for the late pyramid positions and there could be an even greater chance they'll be hit quickly.

<blockquote data-quote="Newt" data-source="post: 1057726" data-attributes="member: 50018">Pyramiding is a fascinating topic.&nbsp; Howard Bandy always talked about the need for Position Sizing and Risk Management to sit outside the trading algorithm.&nbsp; I agree with Skate about the critical issue of concentration of returns also risking &quot;concentration of drawdown&quot;.Suspect most of need to focus on proper execution of our system for an extended period before being tempted into complicating matters with variable position sizing.&nbsp; It will probably be quite difficult to get decent statistical verification of any pyramiding or downsizing additions to your system, which greatly increases the chance of curve-fitting or backtesting returns that may far exceed future real returns.That doesn&#039;t mean it can&#039;t be done.&nbsp; You would probably need to ensure any future additions to a positions continue to be smaller and smaller, and presumably only after each proceeding position is well into profit. Another thing to be mindful of is that any long term &quot;multi-baggers&quot; you manage to lock on to should be experiencing compound growth, not linear.&nbsp; The human mind doesn&#039;t intuitively handle compounding well, but a stock with say 80% compound growth held for 3 years really does undergo amazing increases in size and profits of course in that final 12 months. (e.g. $15k position becomes $27k in one year, then $49k, then $87k - without tax!).&nbsp; Adding in an extra 50% position at 1 yr, then 25% more at 2 years means final $119k (without tax).The volatility of price often also increases exponentially towards the end of a multi-year run for a single stock, so you must ensure you have proper stops for the late pyramid positions and there could be an even greater chance they&#039;ll be hit quickly.</blockquote>

[QUOTE="Newt, post: 1057726, member: 50018"] Pyramiding is a fascinating topic. Howard Bandy always talked about the need for Position Sizing and Risk Management to sit outside the trading algorithm. I agree with Skate about the critical issue of concentration of returns also risking "concentration of drawdown". Suspect most of need to focus on proper execution of our system for an extended period before being tempted into complicating matters with variable position sizing. It will probably be quite difficult to get decent statistical verification of any pyramiding or downsizing additions to your system, which greatly increases the chance of curve-fitting or backtesting returns that may far exceed future real returns. That doesn't mean it can't be done. You would probably need to ensure any future additions to a positions continue to be smaller and smaller, and presumably only after each proceeding position is well into profit. Another thing to be mindful of is that any long term "multi-baggers" you manage to lock on to should be experiencing compound growth, not linear. The human mind doesn't intuitively handle compounding well, but a stock with say 80% compound growth held for 3 years really does undergo amazing increases in size and profits of course in that final 12 months. (e.g. $15k position becomes $27k in one year, then $49k, then $87k - without tax!). Adding in an extra 50% position at 1 yr, then 25% more at 2 years means final $119k (without tax). The volatility of price often also increases exponentially towards the end of a multi-year run for a single stock, so you must ensure you have proper stops for the late pyramid positions and there could be an even greater chance they'll be hit quickly. [/QUOTE]

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