Trick Yourself Into Letting Your Winners Run!

Have you ever had a winning position up 30%, 40% or 50% and you have cash but don’t know if you should buy more? I saw this guys post on reddit.

You should buy more and here are 3 reasons why:

• Winners keep winning. (and you want winners working for you).

• Recent price performance can give clues about future performance (Hurst Exponent)

• Trading should be easy, if it’s hard. You are DOING IT WRONG.

Lets give an example with 2023 major trend reversals / breakouts we all know and love.

AAPL!

We are officially in the 2H of 2023 and the aside from $NVDA or $AMD, $TSLA moves (remarkable moves), we’ve seen Apple go to ALL-TIME-HIGHs. But if you bought when it went bullish (highlighted in the red box below). When do you buy more?

Below is the raw data of Apple highlighted 2 times. The first is when AAPL gave it’s first BULLISH signal on March 31st, 2023. Which is the red bar highlighted on the chart.

Ok, ok. So I bought Apple on March 31st or May 5th but how do I buy more comfortably?

First, I’ll pick the March 31st week closing price and imagine I bought at the open on Monday, April 3rd 2023. This should help you understand I’m not cherry-picking a good price.

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We will assume the purchase was on April 3rd, 2023 at the open. The opening price was $164.04. Now we have the price, we need to find out the average true range of Apple over the past few weeks.

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Average True Range

If you haven’t learned about an Average True Range, well congratulations. This is worth your time. The Average True Range (ATR) was developed by Wells Wilder. He developed it for commodities but I believe it works well in this environment where all markets have a lot of liquidity and more volatility.

I won’t explain how to generate the ATR right now. This guy made a 2 minute video explaining it. It’s a good enough video and short.

All you need, is the the ATR. I prefer weekly ATRs based on the past 10 weeks. But there is no right or wrong here.

Pyramid Levels

Now we have the ATR for the past 10 weeks with Apple. We can where we should have added to the position.

The price on April 3rd, 2023 was $164.04. The ATR on March 31st, 2023 for the previous 10 weeks was: $8.03.

But you’re not here to understand an ATR, you want to know how to keep buying break. Let’s show you.

When Do I Buy Again?

Take your purchase price and add your 10 week ATR to your purchase price. Ta-da…you have a pyramid price. Here is an example in a spreadsheet form.

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If you look at AL column named Pyramid Position (1), you can see the price at $169.06 was the place to buy more.

If you look at AM column named Pyramid Position (2) $174.08 was the place to buy EVEN more.

If you look at AN column named Pyramid Position (3) $179.10 was the place to buy EVEN more.

Now you may ask, what is the formula for this Pyramid Position Purchase?

Well here we go!

• Pyramid Position (1) = SUM(Purchase Price + (10 Week ATR / 2) * 1.25)

• Pyramid Position (2) = SUM(Purchase Price + (10 Week ATR / 2) * 2.5)

• Pyramid Position (3) = SUM(Purchase Price + (10 Week ATR / 2) * 3.75)

In this simple post, I’ve shown how to properly use the ATR to know when to purchase more shares.

This formula works for any stocks, currency or crypto. You want something which adjust with you. Not something so specific it can’t be used across all markets.

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