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Pyramiding Up

Posted By bloveall 8 Years Ago
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Posted Wednesday April 08 2009
I'm curious as to whether anyone who frequents this board has developed a system that pyramids up in price without substantially affecting one's win/loss numbers. I've developed a nice system that has a pretty low max drawdown and decent profits over 20 years. I'd like to increase the profits by pyramiding up in price but obviously I'd like to keep my losses and drawdowns low. Has anyone backtested a system that pyramids up in price and does so in a way that doesn't substantially increase drawdowns? In general, if you've backtested a system that pyramids up, have you found it to be a better or worse system than the same system that doesn't pyramid up?

Brad

Posted Friday April 24 2009
What exactly do you mean by "pyramids up"? Can you give an example?
Posted Friday April 24 2009
Not to put words into bloveall's mouth, but 'pyramiding up' is generally the conceptual opposite of 'averaging down'.

http://www.investopedia.com/articles/trading/09/pyramid-trading.asp
http://www.financial-spread-betting.com/Averaging-down.html

Cheers,
Mark
Posted Friday April 24 2009
This is what I think he means as well, but like mark, didn't want to put words in his mouth.
Posted Friday May 01 2009
Interesting... What I'd like to know is if anyone has successfully experimented with averaging down. Sorry, don't mean to hijack the thread, but it seems related.
Posted Friday May 01 2009
Well, some of my systems "average down" to a certain extent. By allowing the system to open up new positions on the same symbol, you're allowing for that. I think it's easy to see the result of this in backtesting. The more you allow for multiple positions on the same symbol, typically the better your system does. But this is also a clear demonstration of survivorship bias. If you have an item that hasn't gone to 0, presumably it's gone up and any averaging down would've taken advantage of the snap back.

I usually backtesting with max open / symbol = 1. Then depending on my risk tolerance, I'll open it up to 2 per symbol. This also depends on my overall allocation.

Zora (5/1/2009)
Interesting... What I'd like to know is if anyone has successfully experimented with averaging down. Sorry, don't mean to hijack the thread, but it seems related.
Posted Sunday May 03 2009
You might find interesting the following paper: http://www.pimck.com/gfleury/Jensen%20Modified%20Sharpe.pdf which deals explicitly with pyramiding up. Don't let the math stop you, equations are explained. The paper could serve as a starting point and help you design your own system with even better results.

Free research paper: http://www.pimck.com/gfleury 

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