Hello, dear blog readers! I am writing this post January 15, 2013, the middle of winter! I hate the cold, so expect the spring warming! would it come faster! Now to the topic ... Is it true that pyramiding increases the profits of your trade? Is pyramiding of zero system is able to make profitable? The issue is complex, but try to understand it, I hope someone can help! Go!
Pyramiding - is a method of capital management at stock trading. Many traders do not understand or underestimate the role of proper money management, proper money management is for your trading system. It is not enough to develop a profitable trading system, you need to find a MM, which will significantly increase the efficiency of your system. Yes it is possible! Although, at first glance, does not seem particularly important, how much to buy or sell. But it so happens that for a profitable trading system, more than you can earn with less risk! Often there are cases of using deliberately unprofitable MM, not to get into a difficult situation, see the article "irrefutable proof of the principle of the Martingale loss", "position of locking - trick for idiots!".
As already mentioned, for each TC (trading system), there is the most effective method of money management. With the help of various MM may significantly change the characteristics of the trade, such as the profitability of the system, or the amount of subsidence, etc.
Pyramiding can be divided into 2 types, which will talk in more detail.
1 views - pyramiding open position.
2 views - pyramiding positions.
Let's start with the first one!
So, pyramiding the open position - is to increase the volume of the open position if the price goes in your direction. That is, you open certain transaction volume and add items in the course of the transaction. It is difficult to understand the possibilities of this method, but will be examined in the following example. I know it's not easy, but well worth it !!! Anyone can understand the example, will discover the possibilities of this method!
How to profit pyramiding increases?
Commercial standard lot.
Example, your system indicates that you need to open a position on EUR / USD lot at the price of 0.01 1.3050 with a stop at 1.3000.
As already mentioned, for each TC (trading system), there is the most effective method of money management. With the help of various MM may significantly change the characteristics of the trade, such as the profitability of the system, or the amount of subsidence, etc.
Pyramiding can be divided into 2 types, which will talk in more detail.
1 views - pyramiding open position.
2 views - pyramiding positions.
Let's start with the first one!
So, pyramiding the open position - is to increase the volume of the open position if the price goes in your direction. That is, you open certain transaction volume and add items in the course of the transaction. It is difficult to understand the possibilities of this method, but will be examined in the following example. I know it's not easy, but well worth it !!! Anyone can understand the example, will discover the possibilities of this method!
How to profit pyramiding increases?
Commercial standard lot.
Example, your system indicates that you need to open a position on EUR / USD lot at the price of 0.01 1.3050 with a stop at 1.3000.
When trading standard lot you opened the trade, and left it at 1.3350, thus earning 300 pp and $ 30 at risk for $ 5.
Aggressive pyramiding.
What would happen if you apply for pyramiding of this transaction? Let's see! We add lots every 50 pm, so that the risk of not more than $ 5 at any time, so as to move the stop 50 above paragraphs.
Aggressive pyramiding.
What would happen if you apply for pyramiding of this transaction? Let's see! We add lots every 50 pm, so that the risk of not more than $ 5 at any time, so as to move the stop 50 above paragraphs.
1st step: open the deal to 1.3050, stop exhibited by 50 paragraphs below. The price goes up.
Stage 2: the price at the level of 1.3100. We already 50 pm and profits + 5 $. We reposition the stop to breakeven - 1.3050, and 0.01 re-buy more lots at the price of 1.3100. Stop the total risk of $ 5. Now the total amount of 0.02 lots.
Stage 3: the price 1.3150, 50 more paragraphs in our direction. For the lot is 0.02 + $ 10, even $ 5 was for a total of $ 15 +. Physically move the stop on the 50 paragraphs above - 1.3100. Now, if the price will unfold and work stop order, then we will still earn $ 5. You can add a lot of 0.02, in which case the risk will amount to $ 5. The common position of 0.04 Lot.
Stage 4: price rises at 50 pm, is now 1.3200. For the lot is 0.04 + $ 20, $ 15 was a total of $ 35 +. We reposition the stop again at 50 pm above the level of 1.3150. If the price will unfold and reach the stop order, we will earn $ 15 (profit last stage). To risk does not exceed $ 5, you can buy a lot ezhё 0.04. Now, the total position is 0.08.
5 step: the price reaches 1.3250. When the lot is 0.08 + $ 40! It was + $ 35 + $ 75 total. Physically move the stop on the level of 1.3200, if the price goes against us and stop work, then we will earn $ 35. You can add another 0.08 lot. The overall position of 0.16 Lot.
6 step: the price reaches 1.3300. It is + 50 pp, when the lot is 0.16 + $ 80. It was $ 75, the total profit was the $ 155. You understand the pros pyramiding? Now reposition the stop 50 pp higher at 1.3250. If the work stop order, then we will be in the black + $ 75. So, you can buy a lot more 0.16 whereas overall risk will be $ 5. Lot = 0.32.
7 stage: the price at the level of 1.3350. For the lot is 0.32 + $ 160, it was still $ 155, totaling $ 315. The deal closed at the same price as in the first example, but the resulting profits are $ 315 !!! You feel the difference of a standard lot and pyramiding?
The result is $ 315 instead of $ 30! Thus, at any time, the risk of the transaction does not exceed $ 5. These are the possibilities gives pyramiding!
But do not forget that not every transaction runs without a rollback to 50 pm. there are pros and cons in any system. If in the course of the movement, and there was a correction to load the stop loss, then we would have lost $ 5. This method of capital management increases profit per trade, but reduces the amount of profitable trades. If you want to earn more, you should test this method on a large number of transactions and look at the results. Maybe your system this way will be more effective than others.
Definitely, pyramiding compared with standard lot trade increases the drawdown for the same risk in the transaction (that is the risk in the transaction explained in the article "Learn what should be the size of the position!"). But perhaps the meaning will reduce the risk of a single transaction, thereby reducing the drawdown at pyramiding, and will come to greater profits. Under the new capital management system, changing the characteristics of trade, that is, the value of the drawdown, the drawdown period, profitability, equity and so smooth, you need to test different techniques and choose the appropriate for you !!! Everything must be checked!
Smooth pyramiding.
Pyramiding can be used not as aggressive, as shown above. Let's try to always add 0.01 lot, earn this way will turn out lower than the aggressive pyramiding a position, but there are other advantages!
Stage 2: the price at the level of 1.3100. We already 50 pm and profits + 5 $. We reposition the stop to breakeven - 1.3050, and 0.01 re-buy more lots at the price of 1.3100. Stop the total risk of $ 5. Now the total amount of 0.02 lots.
Stage 3: the price 1.3150, 50 more paragraphs in our direction. For the lot is 0.02 + $ 10, even $ 5 was for a total of $ 15 +. Physically move the stop on the 50 paragraphs above - 1.3100. Now, if the price will unfold and work stop order, then we will still earn $ 5. You can add a lot of 0.02, in which case the risk will amount to $ 5. The common position of 0.04 Lot.
Stage 4: price rises at 50 pm, is now 1.3200. For the lot is 0.04 + $ 20, $ 15 was a total of $ 35 +. We reposition the stop again at 50 pm above the level of 1.3150. If the price will unfold and reach the stop order, we will earn $ 15 (profit last stage). To risk does not exceed $ 5, you can buy a lot ezhё 0.04. Now, the total position is 0.08.
5 step: the price reaches 1.3250. When the lot is 0.08 + $ 40! It was + $ 35 + $ 75 total. Physically move the stop on the level of 1.3200, if the price goes against us and stop work, then we will earn $ 35. You can add another 0.08 lot. The overall position of 0.16 Lot.
6 step: the price reaches 1.3300. It is + 50 pp, when the lot is 0.16 + $ 80. It was $ 75, the total profit was the $ 155. You understand the pros pyramiding? Now reposition the stop 50 pp higher at 1.3250. If the work stop order, then we will be in the black + $ 75. So, you can buy a lot more 0.16 whereas overall risk will be $ 5. Lot = 0.32.
7 stage: the price at the level of 1.3350. For the lot is 0.32 + $ 160, it was still $ 155, totaling $ 315. The deal closed at the same price as in the first example, but the resulting profits are $ 315 !!! You feel the difference of a standard lot and pyramiding?
The result is $ 315 instead of $ 30! Thus, at any time, the risk of the transaction does not exceed $ 5. These are the possibilities gives pyramiding!
But do not forget that not every transaction runs without a rollback to 50 pm. there are pros and cons in any system. If in the course of the movement, and there was a correction to load the stop loss, then we would have lost $ 5. This method of capital management increases profit per trade, but reduces the amount of profitable trades. If you want to earn more, you should test this method on a large number of transactions and look at the results. Maybe your system this way will be more effective than others.
Definitely, pyramiding compared with standard lot trade increases the drawdown for the same risk in the transaction (that is the risk in the transaction explained in the article "Learn what should be the size of the position!"). But perhaps the meaning will reduce the risk of a single transaction, thereby reducing the drawdown at pyramiding, and will come to greater profits. Under the new capital management system, changing the characteristics of trade, that is, the value of the drawdown, the drawdown period, profitability, equity and so smooth, you need to test different techniques and choose the appropriate for you !!! Everything must be checked!
Smooth pyramiding.
Pyramiding can be used not as aggressive, as shown above. Let's try to always add 0.01 lot, earn this way will turn out lower than the aggressive pyramiding a position, but there are other advantages!
1st step: buy 0.01 incl 1.3050, stop at 1.3000. Getting the same.
Stage 2: the price rises to 1.3100. Profit + $ 5. Now rearrange stop at 50 pm above 1.3050 and more acquiring the 0.01 lots. The total lot is 0.02. If the price will unfold and stopped out, then we will lose $ 5.
Stage 3: the price reaches 1.3150. 50 pm at the lot give 10 $ 0.02 and $ 5 profit was obtained $ 15. Physically move the stop to 1.3100. More 0,01 re-buy the lot. Total 0.03. Now, if the price goes against us, the position will be closed on the foot, the grand total will be $ 0, that is, we risk nothing. Go ahead.
Stage 4: the price at the level of 1.3200. Profit is $ 15 in the last 50 paragraphs lot 0.03, and $ 15, we had a total of $ 30. Physically move the stop on the 50 paragraphs above 1.3150 and buy more 0.01 lot more. Total 0.04. If the price will unfold and work stop-loss, the lot -50 pm will be $ 0.04 -20. We had a $ 30 +. This means, if stopped out, we still earn $ 10 (30 $ -20 $).
5 step: price 1.3250. Profit + $ 20 and $ 30 was $ 50 total. Physically move the stop to 1.3200. Adding more 0.01 lot. Now the total 0.05. If the price goes against us, the transaction will be closed with a result of $ 25 +. Even if we stop to make money.
6 step: the price reaches 1.3300. Lot 0.05 + 50 + pm is $ 25, it was $ 50, get $ 75 the total profit. Physically move the stop on the 50 paragraphs above, at 1.3250. Adding 0.01 lot. Total 0.06. Now, if you stop work, then we will earn 75 $ -30 $ = $ 45. But the price goes in our direction.
7 stage: the price 1.3350. More 50 pm, for the lot is 0.06 + $ 30. It was $ 75. The transaction closed with the result of $ 105. Excellent result.
In this example, pyramiding is not so aggressive, we added one and the same item 0.01. If load stop in the previous example, we have lost $ 5 in any case. In the same example, with each new step, even in the case of stop-loss we earn more and more! Although the final salary received less. In this embodiment, it turns smoother equity, reduced drawdown.
There are lots of possible applications of pyramiding, you can come up with hundreds of different schemes! One of the most common schemes consider drawdown on pyramiding when adding items is not through a certain number of points, and during the rollback, manages to buy at better prices and are not afraid of setbacks. (As in our case)
Depending on a variety of pyramiding schemes can increase profits, reduce drawdown to reduce the margin, you can build an aggressive stance in the early stages and more smoothly in the end, the possibilities depend only on your imagination, it is not an exaggeration!
The essence of pyramiding as a geometric progression (or arithmetic) is the possibility with each step increase profits at times!
As you may have guessed, it takes a good move, that is the trend for the use of pyramiding. Basically, this method is used for capital management trend systems that often catch these trends. This method is inefficient for systems with large feet and small profits, on the contrary, a profit must be several times greater than the stop to be able to purchase items before achieving profit.
I can not say that the pyramiding of any system is able to make a profitable and increase efficiency, but for some systems it is simply irreplaceable. If you trade trends suggest you test this method for your TC. It may be a good judge, and you will be able to increase your profits!
This concludes the first part, in which we have considered pyramiding open position. In conclusion I want to say that this method of money management can significantly change the characteristics of your trade, so MM is applicable mainly for trending systems, what kind of pyramiding suits your TC can be found by testing a particular method on a large number of transactions. In the second part we learn, what benefits can give a different view - pyramiding positions.
Stage 2: the price rises to 1.3100. Profit + $ 5. Now rearrange stop at 50 pm above 1.3050 and more acquiring the 0.01 lots. The total lot is 0.02. If the price will unfold and stopped out, then we will lose $ 5.
Stage 3: the price reaches 1.3150. 50 pm at the lot give 10 $ 0.02 and $ 5 profit was obtained $ 15. Physically move the stop to 1.3100. More 0,01 re-buy the lot. Total 0.03. Now, if the price goes against us, the position will be closed on the foot, the grand total will be $ 0, that is, we risk nothing. Go ahead.
Stage 4: the price at the level of 1.3200. Profit is $ 15 in the last 50 paragraphs lot 0.03, and $ 15, we had a total of $ 30. Physically move the stop on the 50 paragraphs above 1.3150 and buy more 0.01 lot more. Total 0.04. If the price will unfold and work stop-loss, the lot -50 pm will be $ 0.04 -20. We had a $ 30 +. This means, if stopped out, we still earn $ 10 (30 $ -20 $).
5 step: price 1.3250. Profit + $ 20 and $ 30 was $ 50 total. Physically move the stop to 1.3200. Adding more 0.01 lot. Now the total 0.05. If the price goes against us, the transaction will be closed with a result of $ 25 +. Even if we stop to make money.
6 step: the price reaches 1.3300. Lot 0.05 + 50 + pm is $ 25, it was $ 50, get $ 75 the total profit. Physically move the stop on the 50 paragraphs above, at 1.3250. Adding 0.01 lot. Total 0.06. Now, if you stop work, then we will earn 75 $ -30 $ = $ 45. But the price goes in our direction.
7 stage: the price 1.3350. More 50 pm, for the lot is 0.06 + $ 30. It was $ 75. The transaction closed with the result of $ 105. Excellent result.
In this example, pyramiding is not so aggressive, we added one and the same item 0.01. If load stop in the previous example, we have lost $ 5 in any case. In the same example, with each new step, even in the case of stop-loss we earn more and more! Although the final salary received less. In this embodiment, it turns smoother equity, reduced drawdown.
There are lots of possible applications of pyramiding, you can come up with hundreds of different schemes! One of the most common schemes consider drawdown on pyramiding when adding items is not through a certain number of points, and during the rollback, manages to buy at better prices and are not afraid of setbacks. (As in our case)
Depending on a variety of pyramiding schemes can increase profits, reduce drawdown to reduce the margin, you can build an aggressive stance in the early stages and more smoothly in the end, the possibilities depend only on your imagination, it is not an exaggeration!
The essence of pyramiding as a geometric progression (or arithmetic) is the possibility with each step increase profits at times!
As you may have guessed, it takes a good move, that is the trend for the use of pyramiding. Basically, this method is used for capital management trend systems that often catch these trends. This method is inefficient for systems with large feet and small profits, on the contrary, a profit must be several times greater than the stop to be able to purchase items before achieving profit.
I can not say that the pyramiding of any system is able to make a profitable and increase efficiency, but for some systems it is simply irreplaceable. If you trade trends suggest you test this method for your TC. It may be a good judge, and you will be able to increase your profits!
This concludes the first part, in which we have considered pyramiding open position. In conclusion I want to say that this method of money management can significantly change the characteristics of your trade, so MM is applicable mainly for trending systems, what kind of pyramiding suits your TC can be found by testing a particular method on a large number of transactions. In the second part we learn, what benefits can give a different view - pyramiding positions.
