The Scaled-Down Pyramid
The patterns used to compound positions can be represented geometrically as pyramids. The standard pyramid, or uprigbt pyramid, has a larger base than its top. The largest portion of profits are developed early and an adverse price move is not as likely to be disastrous. The profit-compounding effect of this technique is comparably reduced. A favorite scaling method of this type adds one-half of the prior position at each opportunity. The maximum number of contracts to be held must be planned in advance. The total position, if followed to completion, will be about twice the number of contracts that were initially entered; starting with 20 lots, 10, 5, 2, and 1 would be added, respectively. An advantage of this or any other pyramiding method is that an initial loss will be based on a smaller number of contracts than the final commitment.