Final thoughts on pyramiding…

In the example above, we used a relatively low risk amount at $200 per trade for example’s sake.
But, you can see how quickly pyramiding can build your profits. You have the potential to turn
$1,000 risk on a trade into $10,000 in a short span of time, a 10 to 1 winner. These kinds of
trades are very possible if you’re trading a clean move, that can be a large single-day move or a
large move over the course of a week perhaps.

An important thing to understand is that it does take some experience to know when pyramiding
into a trade may be a good idea and when it’s not. You also need to be prepared to get stopped
out at breakeven, because when you’re trailing your stop loss down like we discussed above, it
doesn’t take a very large retrace to knock you out of all your pyramided positions. But, if you get
just one successful pyramided trade every 3 or 4 months, you’ll be doing quite well.

Another important point is to not let greed take over. You need to plan out how many positions
you’ll add before you enter and when you will add them, etc. Don’t just totally ‘wing it’, or
you’ll end up over-trading and possibly losing money. Each trade is unique and there are no clear
and precise rules, but the concept of pyramiding and adding to winners is universal. Just BE
SURE you are trailing your stop down (or up) to offset the new risk you acquire each time you
add a position, or else you’ll be potentially pyramiding your losses, and you don’t want to do
that.

Also, never add to a losing trade, traders often make this mistake and it’s a quick way to blow
out your account. If a market is moving in your favor you can add to it as discussed above, but if
it is coming back against you and moves back beyond the entries of your earlier positions, you
should be getting out or your stop loss should automatically take you out.

I trust you’ve enjoyed today’s lesson on turning small trades into huge trades. To continue
learning my various trading strategies and philosophies, checkout my trading course and
members area for more information.

Good trading – Nial Fuller

Pyramidizing – the secret to successful trading?

 Posted 17. July 2019

The pyramidization of trading on the financial markets, which we would like to discuss in this
article, can significantly increase the chances of a trader getting a stable income. This strategy
can literally increase revenue from a transaction two or even three times. Pyramidization can be
highly profitable, but it can also be dangerous if it is abused.

We would like to break down this strategy in this article using the example of the foreign
exchange market for you, so that you can double your profit potential in trading. However, you
can apply it to both the futures market and the stock market. After reading this article, you will
understand the pyramiding strategy. You will also understand the underlying dynamics and the
mechanics that make it so profitable. Most importantly, you learn to double or triple your income
from a transaction.

In this article:

 What is pyramidization?
 How do you double or triple your winnings?

Pyramid mechanics

Summary
What is pyramid formation?
Before we continue to analyze the technical aspects of pyramid construction, you need to
familiarize yourself with the basic principles of his work. Trading pyramids is a strategy that
adds a new position to an already profitable position. In other words, these are strategic
purchases or sales with the aim of complementing the existing position after the market has
developed a movement in a direction that is profitable for you.
This is the main advantage of using pyramids in trade. If you have done everything right, you
will not expose your trading capital to any additional risk. You reduce the risk when the market
moves in a profitable direction for you. The following figure clearly shows the basic idea of
pyramid construction.

The figure above shows schematically a clear upward trend in the market, characterized by rising
highs and lows. Such market conditions are ideal to increase the profitable positions of the
trader. In this figure, the price breaks through the resistance values again and again and then tests
them as support.

This example opens buy positions (English long position – the position where the trader buys the
currency at a price and wants to make a profit when closing that position at a higher price). The
first purchase transaction, labelled initial buy in the upper figure, was completed at the time the
market was reviewing the level of previous resistance that became the level of support after the
outbreak. The second (purchase order No2) and third parties (purchase order No3) deal, similar
to the first were made to buy and obliged when the market tested the new level of support
(former resistance).

Remember that the reason to add a new election to your existing long position breaks through the
price of the next resistance level, and then when you return to it, the price tags of consolidation
have to show above this level. Therefore, the presence of a stable trend is a prerequisite for
effective pyramidation. Now that you understand the basic principles of pyramid construction,
let’s look at its mechanics.
How do you double or triple your winnings?

The key to the successful application of the pyramid system is to consistently adhere to an
appropriate risk-of-opportunity ratio. This means that your risk should not exceed half of the
potential profit. Therefore, if your winning target is 200 points, the stop loss should not exceed
100 points. Thus, the risk-return ratio is reached at the level of 1:2.

Let’s look at the following picture with the same uptrend, but this time we’ll add a Stop Loss
order to Pro Purchase.

Suppose that for each button at the Retest level a trading capital of ‘20,000, with you planning to
buy 40,000 units of the base currency, which corresponds to up to 4 mini-lots in the Forex
market. The amount of the planned profit from each transaction during the development of the
upward movement will be different, while the stop loss for each new transaction will not exceed
100 points.

Let’s analyze this example, starting with the purchase of 40,000 units of the base currency. For
this purpose, we present the market, schematically shown in the figure above characterized by a
strong upward trend, which is also confirmed by the older timeframe, so that the dynamics is on
our side.
The prize breaks the amount of resistance, which at the next test becomes the amount of support
by its price. Suppose that such a retest at the support level will create a “bulls” pin bar, so you
decide to buy 40,000 units of the base currency (0.4 lots). At the time of opening the transaction,
you must set a stop loss of 100 points, which is 2 of the risk of your trading capital.

You intend to continue trading as the market continues to show a strong upward trend and your
first transaction has already made some profit. In the course of the trend development, the price
breaks through the next resistance line and tests it as a new support. You can see that the price is
set above this support level and therefore decide to buy another 40,000 units of the base currency
and move the stop loss is to place the first transaction stop loss from the second transaction.

Then, for the third time, the price overcomes the key resistance, which in turn finds support on
the way to further growth. the unbroken upward trend is observed again, you buy 40,000 units of
the base currency and move the stop loss first and second transactions to place the stop loss the
third offer.

Lots of shopping, right? In the third purchase phase, you accumulated a relatively large long
position of 120,000 units of the base currency (1.2 lots). But has your risk increased? In fact, it is
completely absent. In fact, in the phase of closing the third transaction amounting to 40,000 units
of the base currency, with the development of the worst-case scenario, your profit will be 6.

What is the potential gain if the market passes another 200 points in the same profitable direction
after the completion of the third transaction? This will be a huge gain and will account for 24 of
the commercial capital. How is this possible, you ask? Let’s analyze the numbers to find out.

Pyramid mechanics

Now that you have well understood the dynamics that underlie the pyramid, let’s look at the
numbers to see why pyramidization is lucrative.

The following figure shows the same example of a strong uptrend that you saw earlier. Only this
time, the profit potential is taken into account together with the risk profile of the three
completed transactions.