Pyramid trading on Forex

Pyramid trading on Forex

Pyramid trading on Forex

In Forex trading, there is a technique called pyramiding. From its name, it is clear that this system is a certain sequence. The essence of the method is that the trader increases the volume of trading with each transaction.

Pyramiding involves gradually opening positions as the trend develops. You may have a question: why increase something if you can immediately buy or sell it with the required volume?

The advantage of this method is that the trader is not always (almost never) sure what will happen next in the market. All forecasts, no matter how strong they are, are just assumptions about future trends.

Therefore, if you open a deal with a large volume at once, you are at risk, and quite strongly. Pyramiding allows you to increase volumes gradually, without risking everything at once. From some point of view, this is logical.
How do I work with the pyramiding method?

Many traders who are interested in this system, ask the question, and how to work with it? In fact, there is nothing complicated here. Initially, the position size is determined. As we noted above, it should be small and differ in a smaller way from your standard lot (otherwise, what is the point of using pyramid trading on Forex?).

Let's assume that the price went in the direction of your forecast and you already have a certain profit. There comes a time when the trend stops for correction or consolidation of Forex. In this situation, you should wait for the correction or consolidation to complete and open the next position.

How many deals does it cost to open according to the trend? In principle, pyramid trading on Forex does not set any restrictions. It all depends on the trend itself, its length and time of formation. Sometimes the trend lines can be longer, sometimes less. Accordingly, all this affects the decision-making process.

Pyramid trading on Forex involves a clear exit from transactions when the first signals of a trend reversal appear. Therefore, even before opening the first position, you need to roughly determine the goals and calculate trades based on this.

Another important point – pyramiding in trading involves competent money management throughout the work. Initially, you need to decide on the volume of subsequent positions. They can be opened with the same size or with magnification. The latter option is more risky.
Limit the risks

At first glance, pyramiding in trading looks quite simple. Identify a trend, open deals in its direction and make a profit, distributing risks across the entire trend. However, in practice, not everything is as easy as it seems.

Let's say you are faced with a situation when you have a grid of four orders open and the price has started a reversal. You missed this moment and your Pyramid trading no longer works. Now you should think about how to correctly get out of the situation.

But on the other hand, it is not a fact that the price has really turned around. It is quite possible that we are just talking about a deeper correction after which the trend will resume. This dilemma makes pyramid trading quite difficult.

What should I do to protect my positions? There is one good option – set a stop loss. But where should I put it? We recommend setting a stop at the break-even level for all positions. Accordingly, you need to calculate it.

What will be the result? If the stops work, you will not get anything, but you will not lose anything, which is important. Therefore, you can continue to build a grid of orders. And if the price does not touch the stops, your trades will remain, and you will also continue working.
Pyramiding in both directions

This is a rather risky tactic, but we couldn't help but mention it in the article. The bottom line is that the trader makes a grid of orders in both directions and then closes the unprofitable ones, overlapping them with profitable ones.

In principle, both-way pyramiding can work both with pending orders and online. But this tactic, as we noted above, is very risky. Beginners and even experienced traders can easily get confused in their own networks and lose money.

Therefore, we recommend that you think twice before using pyramiding in both directions. It can end badly for your Deposit.
Rules for working with pyramiding

What are the distinctive features of this technique? First of all, transactions are opened in the direction of the current trend (this rule does not apply to situations where transactions are opened in both directions). Do not open new deals if the price went against the forecast after the first one.

There are situations when you open a position and suffer a drawdown. In order to work with pyramiding, we recommend waiting for the moment when this first transaction will be a plus. You must close positions in accordance with your goals or after a certain number of orders have been opened.

It is recommended to trade only on those assets where there is a trend at the moment. In volatile markets in the absence of a trend, pyramiding can cause a lot of trouble and unpleasant moments.

We can say that pyramiding is a very aggressive strategy. It is not suitable for all traders, as it requires perseverance, composure and the ability to make quick decisions. This method is often used by those who want to accelerate their Deposit very quickly or make beautiful Forex statistics.

By the way, there are a lot of potential PAMM account managers among such traders. They take risks at first, showing very high returns.

Sometimes pyramiding is compared to martingale. But in fact, the two methods have little in common. Martingale is a system that came from a casino. There is no need to analyze anything here. You can simply open trades, doubling the volume each time. When pyramiding, you will have to analyze the market and find a trend. Otherwise, you will not be able to build a grid of orders.

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