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Adding to a winning position: pyramiding

Adding to a winning position means increasing a long after price has risen; both average entry and total exposure increase.

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In simple terms

Adding to a winner means increasing a long position after price has risen. The technical language is often pyramiding or scaling in as the position moves favorably.

Example: one unit at 100 and a second at 120 raise average entry to 110. The first trade is profitable, but quantity and capital exposure are now larger.

How it is controlled

The plan should define the signal for each addition, tranche size, maximum number of entries, and stop for the combined position. After adding, risk must be recalculated from the new average. Moving the stop may protect part of the result, but it may also increase the chance of an exit.

Unlike averaging down, the trader adds after favorable movement; this does not remove gap, slippage, or reversal risk.

Limit

An existing profit does not make the new quantity safe. If the addition is too large or too late, a small reversal may erase the earlier gain and turn the combined trade into a loss.

Sources