by millionairemind » Mon Sep 08, 2008 10:36 pm
Lena, here is something I just digged out from Ask O'Neil - Q&A. Hope that it is useful to you.
Sunday, June 24, 2001
"Would you please explain the concept of pyramiding?"
- Submitted from Deep Park, Texas
Pyramiding refers to a strategy in which you make an initial investment in a stock and accumulate more shares as it proves to be successful. It is a way of getting into a stock in pieces, rather than risking everything you want to invest at once. For example, let's say you plan to invest $5,000 in a stock. You start by buying half that amount up front, or $2,500. Then watch what happens. If it the stock down 8% or more, sell it all. But if it goes up 2% or 3% and still looks healthy, consider buying another $1,500. If the stock goes up again, to where it's advanced 5% above your purchase price, then buy another $1,000, completing your investment. Pyramiding, however, must be done with proper interpretation of stock charts. It works when you've initially bought a stock exactly at its pivot point and the market is in a confirmed uptrend. Another form of pyramiding when you buy a stock as it breaks out from a proper base, and it advances until it forms another base. You would buy more shares when it breaks out of that second base.
"If a speculator is correct half of the time, he is hitting a good average. Even being right 3 or 4 times out of 10 should yield a person a fortune if he has the sense to cut his losses quickly on the ventures where he has been wrong" - Bernard Baruch
Disclaimer - The author may at times own some of the stocks mentioned in this forum. All discussions are NOT to be construed as buy/sell recommendations. Readers are advised to do their own research and analysis.