Pros and Cons of Buying Additional Shares at Higher Prices
This is proper money management technique used for controlling risks. Here pyramiding means the growing up the size of winning position. Each add-on has a higher size. If the technical analysts evaluate sizes on the basis of total stocks, traders may utilize profits in order to add to the position.
This technique is well known to boost the productivity of the traders and investors. However, strategy is meant to exploit the trend. You must have enough capital to go through the series of averaging up pyramiding. Thus, you can stay in the market for long period. Prime aim of the technique is to boost the profit factor. Another technique used by the technical analysts is averaging down.
You can even understand the strategy of ‘buying additional shares at lower price’ by saying “throwing good money after bad”. This technique is opposite of the technique described above, Averaging up. This technique is made up by increasing the size of the position when the stock is in negative region.