Pyramiding is adding to places as price moves in the desired trend management. Pyramiding is an extremely competitive trading egy suitable just for full-time professional traders that know how to control risks and have the discipline to execute a tested plan consistently. Pyramiding should be executed only according a predetermined and tested method which contains an effective prevent loss.
Although pyramiding raises profits if the trend continues as hoped, pyramiding additionally increases losses if the trend reverses, so risk control is essential. Reward/risk tradeoffs immediately turn against the pyramid trader when the price trend cries. Because adding to places changes the total price of the entire position on a per-unit basis toward the previous price, a quick change to the initial entrance price can create a significant reduction. And should the price changes direction quickly and invisibly, like on a gap or fast market, it can be impossible or hard to restrict risk according to plan.
The signal to add to places may be triggered in predetermined price factors that support the trend management. Such price points might be dependent upon volatility bands, moving averages, a variety of trendlines, logical chart factors, penetration of resistance levels, etc.
The normal pyramid, which is also known as the scaled-down pyramid or upright pyramid, begins with a large first position and is accompanied by predetermined additions that decrease systematically in size as price moves in the indied trend management. By way of example, if the initial entrance was for 100 shares, then as price moves into the upcoming predetermined amount add 50 more stocks, then 25 more in the next level, then 13 more, for a total of 188 stocks.
The inverted pyramid, which is also called the equal quantities pyramid, adds to a first position in equivalent share-size increments. By way of example, if the initial entrance was for 100 shares, then as price moves to the upcoming predetermined amount add 100 more, then if the price continues 100 longer, then 100 more, for a total of 400. Here, however, the average price per share is much higher, like a smaller price change removes all profit. The inverted pyramid offers better potential benefit in the price of much greater risk, when compared with standard, scaled-down pyramid.
The reflecting pyramid systematically adds to a position up to a predetermined price level, then it lessens the position systematically as the trend continues, hence the reflecting pyramid isn't a pure trend following method. In the event the price does have a major move in the indied trend management, the reflecting pyramid would result in less profit than both the standard and inverted pyramids.
The maximum-leverage pyramid keeps on adding maximum size up to the constraints of collected profits and margin requirements. This is the most competitive egy potential, and it features the maximum potential benefit, the maximum potential risk, and the worst reward/risk ratios. This pyramid must be combined with tight exit rules, or it is a formula for near-certain ruin.
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