Adding positions during a trend

Here is a strategy for adding lots during a trend that someone sent me called The Pyramid:

"Start with more than 1 (mini)lot and add lesser amounts of lots as price continues. This makes the newer positions smaller and drawdown on them eats less profit and the "base" positions generate a lot of profit."



I like this strategy because I have noticed that a trend is usually strongest at the beginning.

I have expanded on this strategy in the following Excel spreadsheet by starting with a 50p stop for 1 lot and increasing the stop 25p each time the lot size decreases. This helps compensate at the end of a trend where I noticed that usually most drawdowns occur.

In the 1st example, the 1st trade was a winner and the remaing 5 were losers, but still made 283p.

In the 2nd example, the 1st 3 trades were losers and the remaining 3 were winners, but still made 55p.

You can change W or L to see automically see different results.

Other:
- No take profit is used.
- The info. in the spreadsheet assumes that there were 6 trades within that trend, and that the trend ended at a price of 1.7500. If there are more than 6, you could continue with .1 lots and increase the S/L until there is a new trend. You can use any increment you prefer.
- The info. in the spreadsheet also assumes that a new trade was entered every 50p during the trend.
- The spreadsheet does not take into account pip value. The purpose is to illustrate the benefit of this system.
- You can use any increasing stop amount you want, I just arbitrarily chose 25p increments.
- This system should produce similar results when using your own method to determine when to enter a new trade.

In order to have success with a Pyramid, its very important to have a systematic approach to adding to the trade. Otherwise, it can be very dangerous. This is even more dangerous when you use something standard like "just add every 25 pips". IMO, the best approach is to use a Turtle-like strategy where you are adding based on the ATR and not just random, arbitrary numbers.

It doesn't matter what stop method (arbitrary, fibs, or whatever) is utilized. My point was that starting with a higher lot amount and adding subsequent lower lot amounts while increasing the S/L is, IMHO, is a very good method to add lots during a trend.

Feathering works well too.

This is my way of saying "hello" to anyone with surfer in their name:

Twoblink had a fun exploration of pyramiding in this thread. He used Pascal's Triangle to calculate relative lot sizes and stop distances.

http://www.forexfactory.com/showthread.php?t=62066