Читать книгу The Guts and Glory of Day Trading - Mark Ingebretsen - Страница 18

Lo herself was determined not to be a punter. Nevertheless, like all traders, she made her share of mistakes early on. One of those mistakes occurred roughly a year after the Black Monday massacre. Lo had begun trading gold stocks once again. To boost her profits she tried a common investment technique called “pyramiding.” Traders using pyramiding increase the size of a position that’s moving in their favour. So, for example, if you bought 100 shares of IBM at 104 and the stock subsequently moved to 108, you might add another 50 shares if you believed the stock was likely to continue rising.

Pyramiding works especially well during sustained bull markets – where you are adding to a long position. Adding to a short position during a sustained bear market is more difficult and far riskier, since the false rallies that are common to bear markets can be steep enough to trigger margin calls.

But with bull markets the technique can nicely augment your gains. Nevertheless, most trading experts advise you to add progressively smaller and smaller amounts to your position – hence the term pyramiding. Your initial position is the largest, forming the base of the pyramid, while any successive amounts are gradually less and less. In that way, each new buy entails successively less risk.

Pyramiding gets dangerous when you add equal amounts to a position – as many traders intent on riding a bull market are tempted to do. It’s all the more dangerous if you’re doing it on margin, as Lo discovered. “If you start with one position, and you double it and double it again, the average price you paid for all those shares very quickly moves up to very close to the market. So just a small setback can totally wipe you out.”

When Lo’s gold stocks pulled back, she was hugely over-leveraged. She counts herself as lucky that she was able to get out with just a $20,000 loss. “Certainly,” she says in retrospect, “if you buy 1,000 shares and you want to buy more on a pullback, don’t buy another 1,000. Buy 300. So your average cost is far behind whatever the average price is now. That way if it bounces or dips you can still get out with a small profit.