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Overview of Pyramid Trading Strategy

Pyramid trading is an advanced strategy designed to scale up profitable trades while controlling risk.
The method focuses on gradually adding to winning positions rather than increasing losing ones.
A successful application relies on discipline, trend confirmation, and effective capital management.
Key Principles of Implementation

Start Small: Begin with a small initial position to manage risk in case of trend reversals.
Add Only When Confirmed: Position additions should occur only when the price breaks significant levels or shows strong momentum.
Use Trailing Stops: Adjust stop-loss levels to protect profits as more entries are made, ensuring earlier profits are secured.
Risk Management Techniques

Limit Number of Additions: Cap the number of position additions to protect against significant losses if the trend reverses.
Small Relative Risk: New risks associated with each addition should be small compared to total capital to prevent pyramid collapse.
Monitor Transaction Costs: Be aware of transaction fees that can accumulate with each added position, impacting overall profitability.
Example Application

Consider entering a trade on EUR/USD at 1.1000 with a stop-loss at 1.0950.
If the price rises to 1.1100, and strong momentum is confirmed, consider adding another position and shift the stop-loss accordingly.
Continue this process as long as the trend is strong, adjusting stop-loss levels to protect previous entries as new ones are added.
Common Pitfalls

Overconfidence: Traders often assume trends will continue indefinitely, leading to potential losses if the trend reverses unexpectedly.
Market Reversals: Sudden news or market gaps can disrupt the pyramid structure, causing significant losses if not managed properly.
Neglecting Discipline: Following strict rules is essential to avoid unnecessarily increasing risks, which can jeopardise the trading strategy.