Investments, My Youtube channel, Trading & Wealth Management

How to use pyramiding to get better trading results

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 get more gains in trading.

For those, who don’t know pyramiding is a trading strategy 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 hoe to use it properly. I can tell you for sure it works very well and it was one of main tools I used in my trading journey from $10k to few millions. And I still actively use this strategy in managed accounts as well, that helps to generate very high returns from year to year.

First of all, I want to pay your attention, that pyramiding 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. 

Your first position should be taken within accumulation or distribution area. In case of rally, look for adding next position on each higher low or rejection from trend line after pullback. It’s important to mention, that market should continue to show strength to keep adding new positions. Otherwords reaching and breaking new highs. Possible formation of distribution area should be the reason to stop adding new positions and considering profit booking.

pyramiding trading strategy

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 small part of already gained profits. In order to prevent increased risk, stops must be continually moved up to recent support levels. But when market goes up, your gains are much higher, as your position grows.  

One more great thing about pyramiding – it helps to avoid psychological trap of taking profits too early. When you use this strategy, you are more focused, more analytical and more cautious. 

Next chart is very schematic, but it will give you better understanding how pyramiding can increase your profits.

pyramiding trading

 

Good luck and good trading to all!