Pyramid Name Origin – Geometry Play & Shapes

Reasoning behind the use of word Pyramid

I am not going to discuss the origin of word PYRAMID or how Egyptian pyramids got their name. I am sure you all know that very well. However, I would like to give you the reasoning behind using the word pyramid as it applies to Pyramid Investing.

Let me start with mentioning that “pyramid” would not be the only name that would fit the idea of Pyramid Investing. At least several other names could be as successfully used to describe this same concept. However, one of the most prominent characteristics of Pyramid Investing is increase in additional investment amount as the price of selected investment instrument goes down. If one would graphically represent these additional investment amounts or “buys” and stack them up on top of each other, a fair resemblance to a pyramid would be achieved. Thus, there is a graphical or geometrical reason to why word pyramid has been chosen.

Pyramid is also a great word that probably associates many with beauty, stability and longevity of Egyptian pyramids. It carries a strong symbolism to monumental achievements of early civilizations. In a sense, Pyramid Investing is your pyramid in investment world. It gives your portfolio stability, longevity to your financial life and provides you with monumental achievement in terms of consistently booked profits. Thus, there is also figurative or symbolic reason to select the word pyramid for such an amazing concept.

Geometry play and obtaining basic Pyramid Investing shape

Fig.1. Ordinary 3D pyramid

So let’s start from the beginning. Let’s look at an ordinary example of pyramid (Fig.1). You can see, as it is also well defined in geometry, that pyramid is a 3-dimensional shape. We usually think of pyramid that has square base, although that is only a special case of pyramid. For Pyramid Investing purposes, only two dimensions are necessary. To be more precise in geometrical terms, Pyramid Investing could be called “Triangle Investing” or “Isosceles Trapezoid Investing” (since we tend to deal with clipped pyramids). Although these 2-dimensional shapes describe better the shape we want to use, their names are quite cumbersome and for the reasons of simplicity and easier association, we want to stick with the term “pyramid”.

Fig.2. Isosceles triangle

Now let’s perform a little geometry play and morph our pyramid into a shape that fits the best the needs of Pyramid Investing. First, we can rid of 3rd dimension by taking into account only cross section of a pyramid. Starting from a regular, symmetrical pyramid and using perpendicular cross-sectional plane, the 2-dimensional shape obtained is a simple triangle (Fig.2). It is not necessarily equilateral triangle, but it is certainly isosceles triangle that has two sides equal in length.

Fig.3. Triangle with price levels added

I have mentioned before that Pyramid Investing concept is about price diversification. It basically operates by employing multitude of price levels to help determine when to buy or sell. So let’s represent different price levels by adding thin horizontal lines inside our triangle (Fig.3.). These price levels will make more sense later as we progress towards final Pyramid Investing shape and definition of Pyramid Investing terminology.

Fig.4. Isosceles trapezoid

The next thing we can do is clip the top of our triangle! We can clip it in such a way that we obtain a different shape that has its top and bottom sides parallel. This shape is called trapezoid (Fig.4), or isosceles trapezoid to be more precise. We will also see later why we want to have a shape that has a flat top instead of a vertex of a triangle.

Fig.5. 2D Pyramid

Our trapezoid has straight left and right sides. But that doesn’t intersect well with price levels we have added. One thing we can do to improve it, is to make those sides as stairs (Fig.5.)! Now, this is much better for our purpose. We can imagine this shape being built from number of rectangles, stacked up on top of each other. Wider rectangles are laid down towards the bottom and narrower ones towards the top. So we have rectangles that are used as building bricks for this pyramidal shape and those rectangles have different widths. What is the meaning of width? What does it symbolize?

So far I mentioned price levels. For each price level, we basically have a rectangle with a certain width. Widths are also increasingly ordered from top to the bottom. I also mentioned earlier that the point of this geometrical exercise is to obtain a shape that will help us determine at what price to buy or sell. But do we know how much to buy or sell? That is exactly the answer – rectangle width represents the amount of the trade.

So we have obtained this interesting shape that is built from number of blocks and really reminds us of pyramids. And talking about pyramid resemblance, how about the resemblance with the Pyramids of Guimar? Click here to see the photo.

Fig.6. Final Pyramid Investing shape

Now, let’s abandon the pyramid resemblance and focus on our rectangular building blocks. Let’s stack them up in such a way that they all got “collated”. In other words, let’s pull them together so they all start from the same line (Fig.6). I am not sure what the name of this shape would be, but that is exactly what we wanted to create in order to be able to define the terminology used in Pyramid Investing.

In the following articles, we will look closer at the width and height of rectangular blocks. We will also look at other measurements of this Pyramid Investing shape. We will give names to all of those and we will stick to that terminology later when we get to analyze and apply different “pyramids”.

Alternative shapes

The shape we obtained here will help us define basic Pyramid Investing terminology. We will use this shape most of the time. There are also some alternative shapes that will help us achieve certain modifications in our investing approach. However, any other shape we get to use will be composed similarly and the same basic terminology will be used to describe it.

Alternative shapes may be quite complex and actually not even obtainable as a cross section of any pyramid. Therefore, the term pyramid is used loosely for those shapes. In those cases, the purpose of term pyramid is to symbolize the concept rather then to reflect the precise mathematical description of a shape in use.

Note for non-geometry inclined investors

I tried to use simple geometry to introduce the shape that will help us define Pyramid Investing terminology. If you never liked geometry when you were in school, you may not find this approach appealing. However, even without understanding all the geometrical terms in this article, the Pyramid Investing concept can still be successfully applied. You can come back to this article later and use it as a reference after you’ve already figured out the terminology we use. At that time, everything explained here will seem pretty easy and self-explanatory.