Adding Equal Positions
Dec 7, 2009
As larger commitments are added, an inverted pyramid is created in which the risk of an immediate loss due to a small reversal becomes greater.
Adding equal numbers of contracts reduces the proportion of the original commitment in the event the trend does not materialize but increases later exposure (when, hopefully, there are large profits). The shift of risk can only be determined by the trader. With this approach, as well as the other inverted pyramid formations, the speculator should follow the rule that no unsuccessful secondary position should offset the entire profits of the prior positions.
