I hope you missed me much. It’s almost +50 °C outside. So hot and it makes me so lazy. But anyway, let’s talk about pyramiding and how it can help you to improve your trading results.
Pyramiding. Trading Strategy Basics
For those, who don’t know, pyramiding is a trading strategy
that is based on adding more contracts or stocks to your already profitable position. You could hear different thoughts about it. Some traders adore pyramiding, others hate it. But, if you think this strategy doesn’t work, you probably don’t know how to use it properly. I can tell you for sure it works very well. By the way, it was one of the main tools I used in my trading journey from $10k to a few million. And, I still actively use this strategy in managed accounts
as well. Pyramiding helps me to generate very high returns from year to year.
First of all, I want to pay your attention that this trading strategy is definitely not for intraday traders. If you are one, better buy ice cream for your kinds and don’t lose money trying to implement this strategy for intraday trades. So, if you want to use pyramiding, focus on bigger time frames and look for markets, that are ready for significant rally or decline. How to identify such markets? – That’s not so difficult if you know what is Wyckoff method
. If you don’t, learn it asap.
Position building with pyramid strategy
Your first position should be taken within the accumulation
area. In the case of the rally, look for adding the next position on each higher low or rejection from the trend line after a pullback. It’s important to mention, that market should continue to show strength to keep adding new positions
. In other words, reaching and breaking new highs. Possible formation of distribution area should be the reason to stop adding new positions and considering profit booking.
It’s very possible your last position will be closed with loss. But it will be offset by gains from original (previous positions). You don’t risk your initial investments, only a small part of already gained profits. In order to prevent increased risk, stops must be continually moved up to recent support levels. But when the market goes up, your gains are much higher, as your position grows.
The next chart is very schematic, but it will give you a better understanding of how pyramiding can increase your profits.
And finally, the great thing about pyramiding – it helps to avoid the psychological trap of taking profits too early. When you use this strategy, you are more focused, more analytical, and more cautious.
Written by Inna Rosputnia
Pyramiding. Trading Strategy To Double Profits by Inna Rosputnia