Hello dear friends! This post is a continuation of the first one, in which we have begun to consider this method of money management as pyramiding! Here is a link to the previous article, read: "Pyramiding increases profit?!?!?! Part 1.". I will say to those who have already read the first part: sure, the second will be at least interesting! Let's start!
So, in a previous article, I have divided the pyramiding into 2 types: pyramiding pyramiding position and an open position. Last we have already examined in detail, learned about the possibilities of this method, the pros and cons. I hope the information was helpful and gave food for thought! Now let's move on to the next sight, know its features and differences.
What is pyramiding positions?
Pyramiding position - it is a way of capital management, at which the increase in the volume of the next transaction, if the previous one has ended profitably. That is, if we bought a lot of 0.01 EUR / USD, and an hour later the deal was closed with a profit of $ 10 +, the next deal we will open an increased volume such as 0.02 lots. If the second transaction is over profits, it is possible to increase the exhibition for the third time, etc. Here is a method of capital management is called pyramiding. We are building a pyramid as it were, rising higher and higher, that is, increasing the volume. What are the pros and cons, as well as variations can provide this approach, we learn on!
For those who are engaged in stock trading is not the first day, the process may remind the other! Martingale. Only when Martingale increase in the volume of the position occurs after a losing trade, and in this case, after profitable. This is a significant difference! In the article "irrefutable proof of principle of the Martingale loss!" Considered this approach to anything good, he does not! Pyramiding position can bring profits!
Example 1.
Imagine that we are trading on the system, which gives 90% winning trades and 10% of unprofitable. The risk on each trade is a potential profit. Imagine that under the rules of the system, we do not outweigh the risks in the 1% of the capital. In each transaction, we also earn 1%. Let in this case, 1% is equal to $ 10. Then a series of five trades will bring us $ 10 * 5 = $ 50. It is trading at a standard percentage of the capital.
Prmer 2.
Apply pyramiding positions and see how we could make this series of transactions, each time increasing the amount of the transaction is 1%. In this case, it is necessary to consider the entire series of transactions as a whole!
1 transaction: + $ 10.
2 Transaction: increase the risk of 1%. Get $ 20 +. If you are stopped, the result in the series will be -10 $.
3 Transaction: increase the risk of 1%. Get $ 30 +. If you are stopped, the result in the series will be $ 0.
4 Transaction: increase the risk of 1%. Get $ 40 +. If you stop work, the result will be a series of $ 20 +.
5 Bargain: increase the risk of 1%. Get $ 50 +. If you stop work, the result will be a series of $ 50 +.
If you add up all the income items, we will get 10 + 20 + 30 + 40 + 50 = $ 150 profit.
In the previous example was profit + $ 50 to $ 150 + that is three times larger.
Example 3.
Now let us turn to the theory of probability, make some calculations. I think they will be useful and can demonstrate the capabilities of this method of money management, that is pyramiding positions. Our system provides 90% profitable trades, 10% unprofitable. That is, for every 100 transactions, 90 times we earn $ 10, and 10 times we lose $ 10. The overall result of the transactions 900-100 100 = $ 800. This average.
Example 4.
Now do so, let us assume that the system we apply the 2-level pyramiding positions. If the deal ends a profit, you should open the double volume. After the second transaction pyramid ends. Here's a simple system. Let's see what happens in this case! Every 100 transactions we have 10 unprofitable. Consider the most unfavorable option for us - there is a losing trade for profit, then it opens the double volume, so it turns loss of $ -20.
Each time such a transaction takes place for profit, generating $ 10. As a result, the result of this pyramid (which ends up losing trades) is 10 $ -20 $ = - $ 10. In this case, the disadvantage such pyramids turned 10, that is, it has been 20 transactions. The overall result of these 20 positions will be -10 * $ 10 = $ -100 pyramids.
And we still have 80 more transactions. Profitable trades. Since losing trades we looked at, then there were only profitable. Get 40 profitable pyramids. The first transaction brings $ 10, the second double-volume brings $ 20, the total profit of each pyramid + $ 30. We have them 40. It is easy to calculate that for the 40 series, you can earn $ 30 * 40 = $ 1,200 pyramids.
On average, 100 transactions, this approach will bring 1200-100 = $ 1,100. When you trade a standard percentage of the capital, we earned $ 800, and $ 1,100 using pyramiding.
This is such an advantage can give pyramiding as a way of money management!
If you remember, the pyramiding open position is mainly used for trending systems, when the amount of profit is much greater than the stop, we talked about the first part. A pyramiding positions, which we now understand, on the contrary, is applicable to systems with a large number of trades. The greater the number of losing trades, the less chance to build a lucrative pyramid, likely losing trade. The more profitable trades, the higher the likelihood of effective use of pyramiding!
Important! Before you use this method of money management, you need to test it on your system. The same needs to be done before you give it up. Good idea to experiment with the size pyramiding, aggressiveness. I am sure that many of the systems with a large number of profitable trades can be made more efficient with the help of this approach! Need to try!
Note that any method of money management changes the characteristics of the trade. Pyramiding no exception. You can change the profitability of the system, the amount of time and drawdowns, margin, total risk, the burden on the psyche and so on, with both the better and the worse. All this is necessary to calculate in advance, rather than in the trading process!
What is pyramiding positions?
Pyramiding position - it is a way of capital management, at which the increase in the volume of the next transaction, if the previous one has ended profitably. That is, if we bought a lot of 0.01 EUR / USD, and an hour later the deal was closed with a profit of $ 10 +, the next deal we will open an increased volume such as 0.02 lots. If the second transaction is over profits, it is possible to increase the exhibition for the third time, etc. Here is a method of capital management is called pyramiding. We are building a pyramid as it were, rising higher and higher, that is, increasing the volume. What are the pros and cons, as well as variations can provide this approach, we learn on!
For those who are engaged in stock trading is not the first day, the process may remind the other! Martingale. Only when Martingale increase in the volume of the position occurs after a losing trade, and in this case, after profitable. This is a significant difference! In the article "irrefutable proof of principle of the Martingale loss!" Considered this approach to anything good, he does not! Pyramiding position can bring profits!
Example 1.
Imagine that we are trading on the system, which gives 90% winning trades and 10% of unprofitable. The risk on each trade is a potential profit. Imagine that under the rules of the system, we do not outweigh the risks in the 1% of the capital. In each transaction, we also earn 1%. Let in this case, 1% is equal to $ 10. Then a series of five trades will bring us $ 10 * 5 = $ 50. It is trading at a standard percentage of the capital.
Prmer 2.
Apply pyramiding positions and see how we could make this series of transactions, each time increasing the amount of the transaction is 1%. In this case, it is necessary to consider the entire series of transactions as a whole!
1 transaction: + $ 10.
2 Transaction: increase the risk of 1%. Get $ 20 +. If you are stopped, the result in the series will be -10 $.
3 Transaction: increase the risk of 1%. Get $ 30 +. If you are stopped, the result in the series will be $ 0.
4 Transaction: increase the risk of 1%. Get $ 40 +. If you stop work, the result will be a series of $ 20 +.
5 Bargain: increase the risk of 1%. Get $ 50 +. If you stop work, the result will be a series of $ 50 +.
If you add up all the income items, we will get 10 + 20 + 30 + 40 + 50 = $ 150 profit.
In the previous example was profit + $ 50 to $ 150 + that is three times larger.
Example 3.
Now let us turn to the theory of probability, make some calculations. I think they will be useful and can demonstrate the capabilities of this method of money management, that is pyramiding positions. Our system provides 90% profitable trades, 10% unprofitable. That is, for every 100 transactions, 90 times we earn $ 10, and 10 times we lose $ 10. The overall result of the transactions 900-100 100 = $ 800. This average.
Example 4.
Now do so, let us assume that the system we apply the 2-level pyramiding positions. If the deal ends a profit, you should open the double volume. After the second transaction pyramid ends. Here's a simple system. Let's see what happens in this case! Every 100 transactions we have 10 unprofitable. Consider the most unfavorable option for us - there is a losing trade for profit, then it opens the double volume, so it turns loss of $ -20.
Each time such a transaction takes place for profit, generating $ 10. As a result, the result of this pyramid (which ends up losing trades) is 10 $ -20 $ = - $ 10. In this case, the disadvantage such pyramids turned 10, that is, it has been 20 transactions. The overall result of these 20 positions will be -10 * $ 10 = $ -100 pyramids.
And we still have 80 more transactions. Profitable trades. Since losing trades we looked at, then there were only profitable. Get 40 profitable pyramids. The first transaction brings $ 10, the second double-volume brings $ 20, the total profit of each pyramid + $ 30. We have them 40. It is easy to calculate that for the 40 series, you can earn $ 30 * 40 = $ 1,200 pyramids.
On average, 100 transactions, this approach will bring 1200-100 = $ 1,100. When you trade a standard percentage of the capital, we earned $ 800, and $ 1,100 using pyramiding.
This is such an advantage can give pyramiding as a way of money management!
If you remember, the pyramiding open position is mainly used for trending systems, when the amount of profit is much greater than the stop, we talked about the first part. A pyramiding positions, which we now understand, on the contrary, is applicable to systems with a large number of trades. The greater the number of losing trades, the less chance to build a lucrative pyramid, likely losing trade. The more profitable trades, the higher the likelihood of effective use of pyramiding!
Important! Before you use this method of money management, you need to test it on your system. The same needs to be done before you give it up. Good idea to experiment with the size pyramiding, aggressiveness. I am sure that many of the systems with a large number of profitable trades can be made more efficient with the help of this approach! Need to try!
Note that any method of money management changes the characteristics of the trade. Pyramiding no exception. You can change the profitability of the system, the amount of time and drawdowns, margin, total risk, the burden on the psyche and so on, with both the better and the worse. All this is necessary to calculate in advance, rather than in the trading process!
