Like the Martingale strategy, pyramid trading strategies are also controversial in trading practice.Some people believe that the final result of this type of trading strategy is to end up blowing up or losing a large loss; Some traders believe that as long as a certain increase in the profitable position and follow the trend, the probability of profit is higher than the loss.In the eyes of veteran forex trader Justin Bennett, pyramid trading is a very beneficial way to trade, but it is not without drawbacks, that is, it should not be overused.
Well, the pyramid trading method is well known"
Nial Fuller is known as a sought-after trader, columnist and trading trainer in the field of forex trading with over 16 years of experience trading in the financial markets.Today, his price action trading is considered "authoritative" by many traders.
Let's take a look at how to use pyramid trading in a profitable state, this "pyramid" position increase (increase) method does not make you take more risk, and may even allow you to make risk-free trades, while greatly increasing the potential profit.In some cases, position expansion is better than some trades, and we're going to talk about that today.
The oldest proverb you've probably heard on Wall Street is"
How to use the "pyramid" style to increase positions on profitable positions
Note that I mean "safe" because there are basically two ways to add a position to a profitable position:
The so-called "R" value in trading refers to the risk, that is, the initial risk you take when you enter the exchange, which represents the loss that you are willing to take to protect your funds in the event of a trade error.For example, in the stock market, you buy a stock for 50 yuan, and then fall to your stop loss level of 47 yuan, and are stopped out, at this time your risk of R is 3, that is, (50-47 = 3).
I'm just saying you can add positions when orders are profitable, but that doesn't mean you have to. You know, sometimes the strategies you learn can be very effective, but sometimes they don't work at all. Usually, you can try to increase your position during periods of strong trend or intraday strong trend volatility, but you should not try this method if the market is in an unstable period of range swings or sharp rises and falls.
Well, every time the trade is good for you, you want to increase the size of your position, so the break-even point of our entire position is very close to the current market price. It also means that if prices move in a negative direction, the entire account will soon be in a negative position. However, if you adjust your stop loss in time, you can expose yourself to an overall 1R risk. As you can see, it is not the increase in positions that puts traders in a passive position, but the absence of stop-loss adjustments to reduce risk.
(credit: 1. You short $20,000 Euro/dollar at $1.2550 with an initial stop at $1.2650, a $200 risk exposure and a potential profit of $600.2. Initial stop level 1.2650; key resistance level 1.2625; admission level 1.2550)
Why I don't easily expand my position
There are definitely many traders confused about the expansion of positions, and I'm not going to talk too much about it today. If you want to know more about position management, you can read my article on Forex Trading Management.
Now I would like to say, in the transaction, I will not easily expand the position, but also do not recommend you to do so. But that depends on the market, and what you do is up to you. Personally, I don't think it makes much sense to expand your position. Although it sounds like a good decision to expand your position in a float, it actually limits your profit. Our principle in currency trading is to profit maximization, not minimize.
In addition, you can see that as you expand your position in a trade, you are also reducing the profit maximization of your position in a favorable situation. It also means that when the price moves in a favorable direction, what you can control is actually a small part of the most profitable segment of the trade... ... In fact, it's not as ideal as what you see above, to keep your profits running.
Therefore, to clear the head when trading, either on the whole to gain the expected goal of trading profits, or on the strong trend under the position expansion operation... ... But I never blindly expand my position to limit profitability.
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