The pyramid forex trading strategy is a something every forex trader should know about because it makes the difference between making 100 pips profit in only one trade or 2000 pips profit by applying the pyramid trading technique.
That can mean 100%, 200%, or even 500% or more forex profits in your trading account.
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Have you ever heard of “let your profits run?” saying?
Well, with the pyramid trading technique, you can do exactly that, and make it even better!
Now, 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.
In this post, I will show you how to do pyramid trading including what type of forex 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.
What Is Pyramid Trading?
Pyramiding is a trading technique where you continue to add onto your profitable trades as price or the trend moves in your favor.
The chart best explains it:
The best thing about pyramiding trading technique is that it allows you to make larger profits and that’s not all, if you do it properly, there is no additional trading risk at all.
How Pyramid Trading Works
Pyramid trading technique works by adding onto profitable positions.
For example, say EURUSD is in an uptrend and you have a trading strategy that gives you a buy signal:
- so you enter a buy trade with 1 contract, 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 contract, and you place a stop loss…this is your second trade.
- Now, what you do is move the stop loss of the first trade and place it at the exact same level where you placed the stop loss of the 2nd trade. In that way, you only have one risk, which is the risk on the 2nd trade. But 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. In that 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 example of the chart given above: the risks for trade 1 to trade 3 have been kept constant at 2%.
This is an important part of pyramid trading strategy: you never increase your trading risks on subsequent trades that you take after the first trade…always keep the same trading risks.
Another 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.
What Type of Forex Trading Strategies Do You Need For Pyramid Trading Technique?
Any trend trading forex strategies can be used. Whatever trading system that you are using as long as its trend trading, the pyramid forex trading technique can be applied.
- The floor traders method is also one good forex trading system for applying the pyramid trading technique.
- the trendline trading strategy is another good one.
- 123 pattern forex strategy is also another one.
- double your forex trading account strategy
Advantages of Pyramid Forex Trading System
- instead of having only one trade giving you 50 pips profit, you can have multiple trades giving you a lot more profit.
- this is one technique where you can increase your forex trading account fast in a very short space of time if you do it properly.
- the only risk on the multiple trades you take is the risk on the current trade because all the rest of the trades must have their trailing stops moved to lock in profits.
Disadvantages of The Pyramid Forex Trading Strategy
- you cannot apply pyramid strategy to every trade as sometimes, your trading system may give only one signal or the trend direction may change.
- some forex 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!
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