Adding Positions to Winning Trades
This week, I thought I’d look at the principle of ‘Pyramiding’.
What Is Pyramiding?
Pyramiding involves gradually increasing your position size during a strong market trend, using unrealized gains rather than fresh capital. The key goal is to maximize profits while minimizing additional risk. Think of it as using the money you already made in a trade and betting with it again on the same trade as it is going in your direction. Free chips in a casino.
Importantly, new positions are only added when the market confirms your trade bias by continuing to move in your favor.
Example: Pyramiding in Forex (Long EUR/USD)
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Initial Trade: Buy 1 lot of EUR/USD at 1.0800
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Market Moves Up: Price rises to 1.0850
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Add Position: Buy another lot at 1.0850
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Further Gain: Price climbs to 1.0900
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Add Again: Buy a third lot
At this point, you’re holding 3 lots, each in profit, and benefiting from the ongoing uptrend.
Smart Rules for Pyramiding
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Add smaller positions each time: Reduce size with each new trade to limit risk.
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Use trailing stop-losses: Protect profits from earlier trades.
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Wait for confirmation: Only add positions after strong signals like trend continuation or a break of key support/resistance levels. You can also wait for confirmations in strong areas when price comes to re-test it again. Using candlestick confirmations could be another way to enter.
Risks of Pyramiding
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Sudden reversals can erase profits from all positions, especially the most recent ones with higher risk.
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Over-pyramiding can lead to overleveraging and emotionally driven mistakes.
- It wont work on every trade, you have to be very selective about which trade it might work best with. Hence why the high risk of losing what you already gained.
Bonus Tip: Exit Gracefully
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Don’t let greed take over. Begin scaling out as the trend shows signs of slowing.
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Use trailing take-profits or reversal signals to lock in gains and exit smoothly.
Kind regards,
Thinus
