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Ken's Mailbag Q&A 2/11/11 - Pyramiding
Kenneth J. Gruneisen, Founder and Contributing Writer, www.CANSLIM.net
CANSLIM.net


Subscriber Questions:

February  9, 2011

Dear Ken,

In yesterdays After Market Update you reviewed the concept of pyramiding into a position. Can you initiate or add to positions based upon intraday prices and elevated volume or should you wait until near the end of the day to see the near final price and volume?   Marcus

 
Ken's Response:

 February 10, 2011

Dear Marcus,
 
Thanks for writing in (about "pyramiding" discussed in the 2/08/11 article in the Featured Stock Update section  - read here) with another great question! 

I believe the pyramiding approach they teach in the Certification is specifically designed so you might make you first buy (of the recommended 3 partial buy orders for an ordinary "full position") without knowing for sure if volume that day is going to meet the minimum volume threshold for a proper buy signal. If volume is not running at an above average pace and the stock doesn't rise an additional 2-2.5% then you'd probably not enter the second or third buy order(s). Then, if ultimately days go by and the stock falters and fails to convincingly break out, you may end up selling the partial position as it weakens. Always sell if it falls -7%, but of course, you don't have to wait until you're -7% on the partial position to sometimes know that it should just be sold. This approach greatly minimizes the damage if it doesn't rally and you're stopped out, and it allows you to accumulate shares at a lower cost basis that is closer to the stock's pivot point. Best of all it, removes guesswork and lets the market action dictate whether or not you get a full position accumulated or not.
 
A lot of us, like me usually, wait until near the end of the session to know for sure how solid the volume total is and how the closing price looks like it will be versus its pivot point. Even if that means risking paying a little more, it is often worth paying a little more and having that valuable reassurance that heavy institutional buying demand is present. Pyramiding the buy orders for every full position is recommended, although in years past and before taking the Certification I enjoyed great success just buying the full position all at once and not pyramiding in.
 
Please let me know if there is any way I can be more helpful to you in your efforts.

Best regards,

Kenneth J. Gruneisen
Founder & Contributing Writer for CANSLIM.net
www.canslim.net

About Kenneth J. Gruneisen, Founder and Contributing Writer, www.CANSLIM.net :
Kenneth J. Gruneisen has successfully completed the CAN SLIM® Certification Program.  Mr. Gruneisen became a Registered Representative in 1987 and his career includes experience offering personalized assistance to investors with more than a decade of experience as a Registered Principal managing a branch office.

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