The pyramid trading strategy is a strategy that every trader should be aware of as it makes the difference between making 100 pips profit in only one trade or 1000 pips profit by applying the pyramid trading technique.

That can mean 100%, 200%, or even 500% or more profits in your trading account. It follows the saying of “let your profits run?”

With the pyramid trading technique, you can exactly that or even better than that.

You cannot do pyramiding with all the trades you take but there will be times where you will really have great opportunities to do pyramiding.

Here we will show how to do pyramid trading including what type of trading strategies that you can use to apply the pyramid trading technique so that you can multiply your profits…very quickly if all goes to plan.

Understanding Pyramid Trading?

Pyramiding is a trading technique where you continue to add onto your profitable trades as the price or the trend moves in your favor.

The chart best explains it:

This trading strategy works as :

Pyramid trading technique works by adding onto profitable positions.

Suppose for example, say EURUSD is in an uptrend and you have a trading strategy that gives you a buy signal:

• You enter a buy trade with 1 buy trade, you place your stop loss and that’s your first trade now.
• Then your trading system gives you a signal to buy so you buy another 1 buy trade, and you place a stop loss. This is your second trade.
• Now, move the stop loss of the first trade and place it at the same level where you placed the stop loss of the 2nd trade. By this way, you only have one risk, which is the risk on the 2nd trade. And you don’t have any risk on the first trade.
• Then you see a buy signal and then you take a third trade. You place a stop loss. So now, you have to move the trailing stop losses of the first trade as well as the 2nd trade and place it at the level where the stop loss of the 3rd trade was placed. By this way, trade1 has locked in a lot of profits now, trade two zero risk and your only risk will be the risk on trade3.

Now, this chart below is the same chart as above but with a lot more detail of how pyramiding strategy actually works :

Pyramid Trading Does Not Increase Your Trading Risk :

Look at the chart, the risks for trade 1 to trade 3 have been kept constant at 2%.

This is an important part of pyramid trading strategy: you don’t increase your trading risks on subsequent trades that you take after the first trade. Always keep the same trading risks.

One more important factor is  that you only open a new trade when the previous trades have their trailing stops moved to lock in profits.

So if the present trade you place turns into a loss, you will only lose on that trade but the previous trades will all have profits locked so you will walk away with lots of profits from all those trades you took along the way as the market moved in your favor.

 Trading Strategies to be used Pyramid Trading Technique?

Any trend trading strategies can be used. Whatever trading system that you are using as long as its trend trading, the pyramid trading technique can be applied.

• The floor traders method is one good trading system for applying the pyramid trading technique.
• The trendline trading strategy is also a good one.
• 123 pattern strategies is also a good one to be considered.

Pros :

• Instead of one trade giving you small profit, you can have multiple trades giving you a lot more profit.
• A technique where you can increase your trading account fast in a very short space of time if followed properly.

Cons :

• Sometimes, your trading system may give only one signal or the trend direction may change, thus you cannot apply pyramid strategy to every trade.

• Some traders would tend to move their stop losses (increase stop loss distance…thus increasing their risk) when they see price heading the other way to nearly knocking off their stop losses. Don’t do that. The only loss you should suffer is the loss of the most recent trade….all the other trades, when the trailing stop loss gets hit, you should be smiling all the way to the bank!