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Also, as discussed, the key to successful Pyramiding is to maintain proper risk to reward in each of the trades. As a thumb rule, our risk must never be greater than half the potential reward. In this particular pair, we decided to buy two mini lots on a retest of each of the levels. The take-profit for each trade is varied as per the market conditions, but the stop-loss for each new position should not be more than 15 pips. In the below chart, we can see the market broke through a resistance level.
We have decided to buy 20, units right after the price took the broken resistance line as support. In a few hours, we have observed the price action blasting to the north and broke a new resistance level. The price again started to retest the level as new support. At this point, we decided to buy 20, more units.
You can see that the buy order 2 in the below chart indicates the second trade, and we have trailed the stop-loss below the second position. We found the trend to be super strong still, so we let this trade to run for the deeper targets. On the 5 th of February, the price again broke through a new resistance level and retests as a support area.
We did a lot of buying up until this point and built 80, units in one single pair. So the real question by the end of the third position is how much of our money is at risk? In the above chart, we can see the final trade setup of all the three trades we took. By the end of all the three trades, we made a profit of 28 percent. The profits on each of the trades have compounded throughout the process, where the risk in each trade remains the same.
Overall, we have generated 12R, 10R, and 6R in the first second and third trades, respectively. Never forget that the pyramid strategy works very well only in the trending markets. Also, try to avoid using this strategy in volatile markets. Pyramiding is a great way to compound our profits in a winning trade. Knowing when to use and when not to use the pyramid strategy is the crux here.
Hence it is advisable to read the different market situations on a demo account first before using this strategy on a live account. Save my name, email, and website in this browser for the next time I comment. Forex Academy. Please enter your comment! Please enter your name here.
This process continues until the system stop is reached. The stop loss is set at a distance 50 pips lower than the current bid price. On execution of any order, the stop losses for the earlier orders are moved to the same level at 50 pips below the current price. This locks in profits on the trades that are already in profit.
There are no take profits. This trade system lets the winners run. The profit on the whole system is realized when the trend falls low enough to execute the stop losses. Figure 2 is an example run, and demonstrates how a pyramid trade captures profits on a rising or falling trend.
The blue line is price. The red dots are the buy stop orders that execute. Notice here that the green line resembles a moving average. The more orders that are placed, the closer the entry will be to the average. This makes it far easier to exploit a trend than gambling on a single entry. These settings are just by way of an example.
To experiment with different trade setups use the pyramid trading spreadsheet below. With pyramiding money is drip fed into the market. And while risk is lower, the profit potential is lower too because it achieves an averaged entry price. With a single entry system, you have the potential to make bigger profits, if , you time the market right.
All ebooks contain worked examples with clear explanations. Learn to avoid the pitfalls that most new traders fall into. Download file Please login. Ebook Pack 3x Popular eBooks. Importance of Hidden Support and Resistance Hidden support and resistance is virtually unknown to a majority of traders.
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