Pyramiding And Antipyramming In Forex Market
What is a pyramiding? The main essence of pyramiding is that you can enter the market with a large aggregate lot, but the risk will remain quite acceptable.
For example, a trading strategy allows a trader to risk only one percent of a deposit. He opens the position according to his risk management and, as soon as the profit on this position grows slightly, translates it into a break-even, that is, puts a positive Stop Loss.
After waiting for the rollback, he opens another position in the same direction as before, using the same rules of his risk management. After the second position, a third and so on is similarly opened, depending on the trend force and the time frame used. Since the risk for the deposit is only the transaction that was opened last (all other transactions are transferred to break-even), such trade is low-risk, but profit can bring good. By building a pyramid of warrants, you can reduce the risk.
For example, if the risk when opening the first warrant was one percent, then when opening the second warrant, the risk can be reduced to 0.75 percent. The third position will pose an even smaller threat to the deposit - 0.5 percent, the fourth - 0.25 and so on.
The pyramid has some rules:
The pyramid system is used only when there is a trend in the market. If the market is in the flute, the positions transferred to the break-even will constantly "fly out," and the position that opened last will constantly close by Stop Loss.
Pyramiding is better used in medium- and long-term trade. The system can also work inside the day, but since intraday trends quickly change one another, there is a risk of constantly "catching" Stop Loss.
Using pyramiding, it is necessary to translate into break-even positions, otherwise there is a risk at the opposite course of the price to build an "antipyramid," which will increase risk, not profit. However, in some cases antipyramiding can be usefully used.
For example, the trader opened the position, and the price immediately went in the other direction, but he is sure that he was not mistaken and will wait for his profit, just the price has not yet finished the rollback. Then after some time he opens another position in the same direction as the first, hoping that this time the entrance place turned out to be correct. If he turns out to be right, the losses will soon pay off, if not right - rather, he will have to close both positions in order not to increase the loss.
The second name for antipyramiding is averaging. It is necessary to resort to this system in extreme cases when the movement of the price in a certain direction is obvious.