Stock Trading Strategy - Pyramid Your Profits!

Are you one to throw caution to the wind, or do$3450 on the shares bought at 22.50, for a total loss
you cut your losses short, and let your profits ride?of 2450, which is approximately how much you were
It may surprise you to realize that while manyrisking on this trade. If it then continues to go up to
traders think they cut their losses short, and let their$25/share, then you made $5000 on the shares
profits ride, there is a simple technique that will allowbought at 20, and another $5750 on the shares you
them greatly amplify those profits, while keeping theirbought at 22.50, giving you a total gain of $10750,
losses manageable. This technique is known aswhile only putting 2500 at risk. By adding shares, or
"pyramiding your profits"."pyramiding your profits", you substantially increased
The art of pyramiding your profits begins with goodthe potential reward of the trade, while maintaining a
risk management. You should risk no more then 5%safe level of risk, and by cutting your losses short,
of your portfolio on any given trade, and manyand letting your profits run, your ability to profitably
experienced traders use numbers as low as 2-3%.trade the markets will be greatly enhanced.
This doesn't mean someone with a $50000 portfolioMake no mistake; this strategy is applicable to long
can only invest in $2500 worth of a companies stock,term investors as well. Assuming you're invested in
it means that when they are setting their stop loss,an up trending stock, then adding shares to your
they must be cognizant of how much they can loseinvestment whenever it breaks above the last high
on the trade.will greatly assist in maximizing the profits from the
So if a company is trading at $20 per share, and ourbig overall trends that appear in the markets. If
stop loss is at $17.50, we can lose $2.50 per share byyou're investing for longer time periods, its advisable
buying. If we're willing to lose no more then $2500,to leave some profit in the case of it hitting the stop
then $2500/$2.50 = 1000 shares. So we shouldloss.
purchase 1000 shares for this trade.The interesting thing about this strategy is while it's
With your standard trade, that would be it. An orderalmost the opposite of some conventional wisdom -
to sell at a certain price, and order to buy at ayou never go broke taking a profit - it does strongly
certain price, and a stop loss. When your pyramidingadhere to the idea of cutting losses short and letting
your profits though, there's an integral extra step.profits run. The key is to do more of what's working,
When the stock has gone up in price, and you haveand less of what isn't, and that's exactly what this
some profits, you add MORE to the position. Letskind of trade accomplishes.
say it goes up to $22.50, and you decide to moveThe most successful traders in the market aren't the
your stop loss up to $21.00. You now have 1000 inones who are right on 80% of their trades. Many of
gains if you get stopped out. To pyramid yourthe most successful aren't right on 50% of their
profits, you add that 1000 in gains to your risktrades. A few of them aren't even breaking 30 or
amount for the trade, for a total of $3500. Since its40%. What separates the best from the rest isn't
now at 22.50, and we can risk up to $3500, then wehow often their right, but how much they make
should purchase another 2300 shares. (3500/1.5 =when they're right compared to how much they lose
2334).when they're wrong. By pyramiding your profits, you'll
If it gets stopped out at 21, then you made gains ofmake massive gains, and small losses, which is a key
$1000 on the shares bought at 20, but you lostto becoming a successful trader.