How to reduce costs by replenishing inventory?

There are basically three situations for replenishment: the first is an inverted pyramid, where the amount of each replenishment is greater than the original position; The second type is the uniform formula, which means that the amount added each time is the same; The third type is pyramid, which means that the amount added each time is half less than the previous batch of transactions.

Assuming that we buy A-shares at 5 yuan per share, the stock price keeps rising, and then we increase our holdings at 5.50 yuan, and then increase our holdings at 6 yuan. Assuming that we have a total of 70000 A-shares on hand, if we distribute them according to the above three methods, we will generate three different average prices: buying 10000 shares for 5 yuan in an inverted pyramid, adding 20000 shares for 5.50 yuan, and replenishing 40000 shares for 6 yuan, with an average price of 5.71 yuan; Buy the same number of stocks at three price levels of 5 yuan, 5.5 yuan, and 6 yuan using the uniform formula, with an average price of 5.50 yuan; And with a pyramid shaped strategy of buying 40000 shares for 5 yuan, buying 20000 shares for 5.50 yuan, and buying 10000 shares for 6 yuan, the average price is only 5.285 yuan. If the stock price continues to rise, the 70000 shares in hand will earn an additional 0.21 yuan per share in a uniform increase compared to an inverted pyramid. The pyramid style replenishment earns 0.425 yuan more per share than the inverted pyramid style.

Obviously, making money in a pyramid format is superior. The reverse calculation is also the same. If the stock price fluctuates and breaks through 6 yuan before falling back to 5.50 yuan, the inverted pyramid will immediately turn from making money to losing money due to the average price being too close to the market price, and the original floating profit will be lost and trapped; Uniform weighting can only barely maintain profits or make up for losses, and often leads to the phenomenon of previous efforts being wasted. Only the pyramid shaped average low price is a better strategic approach.

Therefore, the correct way to replenish positions is to follow the trend and maintain a pyramid shaped buying price structure, so that the average price is relatively low and can ensure safety in price fluctuations.

  Notes on replenishing inventory

1. In the early stages of a bear market, it is not possible to replenish positions. Those who trade stocks understand this principle, but what if some investors cannot distinguish between bull and bear turning points? There is a very simple solution: if the stock price does not fall deeply, we will resolutely not replenish our position. If the current price of the stock is 5% lower than the buying price, there is no need to replenish the position, as any intraday volatility may lead to a pull-out. If the current price is more than 20% to 30% lower than the purchase price, and even if some stock prices are abruptly cut, it is possible to consider replenishing the position. The space for further decline in the future market is relatively limited.

2. The market has not stabilized and there is no need to replenish positions. When the market is in a downtrend or experiencing a rebound, it is not possible to replenish positions, as further declines in the stock index will drag down the majority of individual stocks, except for a very small number of stocks that strengthen against the trend. The best time to replenish positions is when the index is at a relatively low level or has just reversed upwards. At this point, the potential for an increase is enormous, and the possibility of a decrease is minimal, making it safer to replenish positions.

3. Weak stocks are not replenished. Especially for those unbranded stocks that do not rise when the market rises and fall when the market falls. Because the purpose of replenishing the position is to use the profits from the stocks that were later replenished to compensate for the losses of the stocks that were previously hedged. Since this is the case, there is no need to limit oneself to replenishing the varieties that were originally hedged. It's not crucial what variety to replenish the warehouse with, the key is to obtain the maximum profit from the replenished variety, which is the key consideration. So, if you want to replenish your position, you should replenish strong stocks, not weak stocks.