I intraday trade the ES everyday, and sometimes crude or the ten-year. Imo, pyramiding works best late in the trading day, after 2 PM (east). I have never added on in the morning. In fact, I don't trade until well after 10, usually (gap days are the exception). But afternoons are for me the best time to pyramid. Why? Because that is the time traders are most likely to get trapped. Strongly trending days tend to get even more strongly trending in those late afternoons. For those who average down instead of up, that last hour is where the real pain is felt. They truly are like deer in the headlights, since there really is no time to get out of the way. Not too many blow up before 11 AM, I imagine. Most of the "I averaged down--so kill me now" threads you see here were created afternoon, I'd bet. Pyramiding is the inverse of averaging down. There is big money lost while averaging down. So, on the contrary, big money is won when averaging up--at the right time.
for me , scaling out works best. entering maximum size otoh is generally what i do. a nice thing about having the last segment scaled out is that sometimes a scalp can turn into a position trade. as long as it keeps going your way. i had a trade the other day that was intended just to be a scalp end up in a 3 day trade. i made many many many times the points i normally make. i always have a set stop, so i always know my exact loss/risk (given a possible tick or two extra of slippage), but the potential gain in a trade is unknown which method (scaling, pyramiding, gunning, etc.) will work best depends on a host of factors. trading is not just about what is numerically best, also. i have computed sharpe, deviation, and all sorts of stats, but what it comes down to is that you have to have methodology with positive expectancy that you cAN trade. iow, i am not a robot. the metholology has to suit my personality.
We recommend pyramiding. If you're on the winning side, add to your position. Pyramiding out of a trade sometimes works, but usually, we use technical analysis and liquidate everything on the way out. Either that our use trailing stops to eliminate emotion and get stopped out automatically. Overall, that strategy seems to work the best.
Interesting post. Here's my pyramiding philosophy and approach: IMO pyramiding is done because early in a potential trend, the picture is quite unclear. Because of the lack of clarity, you don't have as much confidence in the trend - it could be just a false breakout, or a temporary blip. So you want a conservative position size to test the waters. Now let's say the market goes your way, it breaks out to a new yearly high and extends further. You now have more evidence that a potential bull market is unfolding. So, that can justify a bigger position size, since you have more evidence to back your view. Next, you want to see how the market handles a pullback. Will it bottom out at a higher low, then move back strongly and break to new highs? That's what you want to see. So, if the market can handle the first pullback, then recover to new highs, that's more evidence of a strong trend in place. After that, I have my maximum conviction in the trend. So, from then on I want to be buying each pullback, as I feel justified in assuming that the trend remains intact. Buying short-term pullbacks exploits the market noise, to my benefit. As long as it keeps making higher highs, and then higher lows on pullbacks, I will keep adding on each dip. This works only for markets that have the potential to make very large long-term moves. Markets that are potentially going to rally 30, 40, 50%+. Pyramiding is very bad for smaller moves, since you are highly likely to be adding near the end of the move. E.g. if a market is going from 100 to 85, you don't want to be pyramiding at 92, 88, 85. You will end up with max size at the lows, and get hammered once the move reverses. Overall, I think it's better not to think in terms of pyramiding, but rather in terms of sizing the position to the risk/reward equation, and your confidence level in the trade. As a breakout turns into a trend, and the trend gets tested and passes those tests, my confidence level increases, thus I add size. Whereas a smaller move, once it's made say 75% of the expected move, the risk/reward is not as attractive as at the start of the move, so you should be scaling out. Pyramiding works for some situations, and scaling out works for others. If you look at trade odds, expectation, risk/reward, and confidence level, then you will realise which approach is best for any given situation, rather than sticking to one approach dogmatically without and regard for the specifics of the market situation.
Pyramiding positions can get you ruined if something unexpected happens. I agree that pyramiding is a way to make more money but I do NOT recommend it to anyone. Ron
There was a guy called Frank W. Richards a few years back, who sold a manual called "The Insider's Profit Matrix". It recommended a form a pyramiding with call options. Actually it's more of a parlay than a pyramid but the two are quite similar. Here's his method Divide your capital into 50 equal units. If you have $30K, each unit is $600 Find one or more attractive call option purchase plays Bet one unit of capital on each call purchase play Buy out of the money call options Hold till expiration For the ones that lose money or expire worthless: forget them For the ones that make a profit: hold back your initial purchase price, and reinvest ALL OF THE REST of the profits in purchasing out of the money call options for the next expiry. The ones that hit, therefore hit really big. After holding through 2 expirys, reset back to the original size of one unit. "Keep doing this until prices stop going up" . His justification for suggesting this method was: If you had done this with call options on Crude Oil just before the invasion of Kuwait, you would have made a ton of money. Since you're buying options rather than taking long or short positions in stock or Forex or futures, your risk is strictly limited. You can't lose more than your original purchase price. (On the other hand, you will lose 100% of your purchase price, many times, on options that expire worthless...) Just imagine if you had been playing this system in December, January, and February, in Platinum. Wow!
How do you optimse the pyramiding of opposite trades(long/short) for the same or highly correlated instrument itself ? at equi distance or different increasing/decreasing distance for the winner and loser? winning side: 10, +7, +4, +2, +1 @every Npts Losing side: 10, +6, +6, +6, +6 @every Npts What is the Net after 5N? When do you start scaling out? or do you clear both sides?