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PYRAMIDING / MULTI-ENTRY / AGGREGATE RISK

Scaling Into Positions: Shared Stops, Risk Budgets and Multi-Entry Logic

Adding a second entry is not simply another trade. Once several positions express the same market idea, their risk must be evaluated together against the same invalidation level.

10 MIN READRISK MANAGEMENTENGINEERING NOTES

Scaling in changes the problem from trade risk to portfolio risk

The source builds examples with two entries at different prices sharing a common protective stop. Because each entry has a different distance to that stop, equal lot sizes do not produce equal risk. The lesson therefore allocates a monetary risk budget to each leg and calculates the size of each entry separately.

Define the total risk envelope first

Before adding positions, define how much the complete idea is allowed to lose if the common stop is hit. The lesson gives a simple example of splitting a $300 total budget equally or unevenly between two entries depending on the intended weighting.

total_idea_risk = 300 leg_1_budget = 125 leg_2_budget = 175 assert leg_1_budget + leg_2_budget <= total_idea_risk leg_1_size = size_for_stop(entry_1, common_stop, leg_1_budget) leg_2_size = size_for_stop(entry_2, common_stop, leg_2_budget)

A common stop creates different stop distances

In the lesson's GBP example, the upper entry is farther from the common stop than the lower entry. The lower entry can therefore carry more volume for the same monetary risk. This is the mathematical reason a later, better-priced entry can contribute disproportionately to the final P&L.

Do not confuse adding size with adding risk

A bot should not decide that a second entry is safe merely because the first trade is profitable. It should recalculate aggregate loss at the shared stop after every proposed order, including existing positions, the new quantity and execution costs.

projected_risk = risk(existing_leg_1, common_stop) + risk(existing_leg_2, common_stop) + risk(proposed_leg, common_stop) if projected_risk > idea_risk_limit: BLOCK_NEW_ENTRY else: ALLOW_OR_RESIZE

Closing one leg and protecting another

The source describes a discretionary variation in which the less attractive entry is closed after price moves favorably, while the better-positioned leg remains and can be protected around break-even. For automation, the conditions for this action need to be explicit: profit threshold, structural resistance/support, fees, minimum stop distance and whether break-even means entry price or entry plus costs.

The engineering rule

Treat a pyramid as one risk object containing multiple legs. Store the common thesis, shared invalidation level, per-leg risk, aggregate risk and current permission state. That is substantially safer than letting each order behave as an independent trade.

Important: This article is an engineering interpretation of educational trading material. It is not investment advice, a trading recommendation or a guarantee of results. Position sizing must use the actual instrument specification supplied by the broker or exchange.
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