How to Pyramid Entries to Increase Initial Risk/Reward 10-fold | Forex Factory

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How to Pyramid Entries to Increase Initial Risk/Reward 10-fold

  • #1
  • First Post: Aug 12, 2013 1:03am Aug 12, 2013 1:03am
Look to this thread sometime this weekend, it will be completed with charts and images. For now I'll keep this brief as it's hard to figure out what I mean without the charts anyway.


I feel like sharing my recent breakthrough (Q2/3 2013) on what I consider the best way to trade is (lowest risk, highest reward)
and I also believe this to be the way that market makers trade.

It requires EXTREME patience and psychological fortitude, which is why it is so difficult to do.

Just because I know how to do it, doesn't mean I am able to do it. But I am working on mastering it. I've done it a few times and it felt really good.

Initial risk reward is often 5 or 10:1, but when we pyramid the trade the end risk/reward can exceed 100:1

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First off, let me just say there is a conservative and an aggressive way to do this.

1) aggressive --- You try to take profit at the intraday swing highs and lows, and re enter on a correction with a stop just below/above where you think the correction has ended, or a nearby support level you think will hold.

2) conservative --- You don't take profits intraday because you aren't that skilled of a trader, or you simply DO NOT want to miss the rest of the move (the big part). In this conservative approach, wait for the market to correct, and enter your pyramided position with a stop loss for BOTH positions above/below where you think the correction has ended, or a nearby support level you think will hold.
Be hopeful in a winning position, and fearful in a losing position.
  • #2
  • Aug 12, 2013 1:10am Aug 12, 2013 1:10am
reserved
Be hopeful in a winning position, and fearful in a losing position.
  • #3
  • Aug 12, 2013 1:19am Aug 12, 2013 1:19am
OK,
  • #4
  • Aug 14, 2013 1:58pm Aug 14, 2013 1:58pm
Sounds very interesting. I would love to see how you achieve this. I'll be waiting for your charts!
  • #5
  • Aug 17, 2013 7:44pm Aug 17, 2013 7:44pm
Don't think I forgot about this!!

Working on it right now.
Be hopeful in a winning position, and fearful in a losing position.
  • #6
  • Aug 19, 2013 3:44am Aug 19, 2013 3:44am
Hi there,

I'll be interested to see what you post. I have a hunch but will reserve comment until your charts are up.

Looking forward to it.

With kind regards,
MK
  • #7
  • Aug 19, 2013 4:11am Aug 19, 2013 4:11am
Quoting Rag2RichesFX
1) aggressive --- You try to take profit at the intraday swing highs and lows, and re enter on a correction with a stop just below/above where you think the correction has ended, or a nearby support level you think will hold.
2) conservative --- You don't take profits intraday because you aren't that skilled of a trader, or you simply DO NOT want to miss the rest of the move (the big part). In this conservative approach, wait for the market to correct, and enter your pyramided position with a stop loss for BOTH positions above/below where you...
I might be missing something but how is point 1 pyramiding? You're entering, exiting, and re-entering trades rather than adding to a position (i.e. pyramiding). The conservative approach seems the more aggressive of the two.

How about this (idea borrowed from someone else): put on a position, when in profit add to your position (at an appropriate point, ideally a setup in and of itself) risking your usual risk plus the entire "paper" profits of the initial position. SL will stop out your entire position. If stopped out on this new position you lose your usual risk (1R), if the trade goes in your favour you have a much larger position on. And you can do this multiple times over the course of a single overall "position", e.g. in a swing trade. That's aggressive pyramiding.
  • #8
  • Aug 19, 2013 4:20am Aug 19, 2013 4:20am
Quoting eurotrash
{quote} I might be missing something but how is point 1 pyramiding? You're entering, exiting, and re-entering trades rather than adding to a position (i.e. pyramiding). The conservative approach seems the more aggressive of the two. How about this (idea borrowed from someone else): put on a position, when in profit add to your position (at an appropriate point, ideally a setup in and of itself) risking your usual risk plus the entire "paper" profits of the initial position. SL will stop out your entire position. If stopped out on this new position...
et, what you describe, is what I use for my swing trading.

However, there are moments in trade when is very high probability that retracement will come and one can exit there... at least part.
and reenter lower.

Never worked for me. One of two happened so far:

1. When I exit, market comes off, I reenter lower, market continues lower
2. when I exit, market continues up without me and no retracement.
  • #9
  • Aug 19, 2013 4:51am Aug 19, 2013 4:51am
I also believe this is the best way to trade friends,

Only thing is, you have to plan-visualize your trade, from the beginning to the end. That requires higher time-frames. At least 4h and up. Then depending on the point of where the price lays any given moment at first you calculate the position and the risk you want to take according to your m/m and risk you want to take. i would nt only add up when it goes in my favor, but also if it moved against me but still within the trade planned again according to each ones risk and m/m.
I have to say it has been the most profitable way for me so far
  • #10
  • Aug 19, 2013 5:16am Aug 19, 2013 5:16am
Quoting stormtrader
i also believe this is the best way to trade friends, only thing is, you have to plan-visualize your trade, from the beginning to the end. That requires higher time-frames. At least 4h and up. Then depending on the point of where the price lays any given moment at first you calculate the position and the risk you want to take according to your m/m and risk you want to take. I would nt only add up when it goes in my favor, but also if it moved against me but still within the trade planned again according to each ones risk and m/m. I have to say it...

going on smaller time frame now awaiting for a pull back close to my broken trend line for A long with sl below 130
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  • #11
  • Aug 19, 2013 7:30am Aug 19, 2013 7:30am
I'm eagerly waiting for what Rag2RichesFX will post because all the proposed ideas I could find, in this thread and elsewhere, actually increase the risk and lower the expectancy of any system.

When averaging down (stormtrader post#9) the R:R increases but the overall expectancy decreases. That's because the nearer the price approaches the SL the more probable the trade is a loser. You are increasing your risk for a trade which is more and more probably a loser.

When averaging up, you add risk just by opening a new position. Especially trailing the SL to BE on the first entry is also an increase of risk. Your SL is no more protected by any S/R and the market likes re-testing broken levels. Seaman2's scenarii: a BE and a loss instead of one winner. The potential reward doesn't increase in the same proportion resulting in a decrease of the R:R while the probability of reaching the target doesn't improve, or not enough.

In both cases you are technically in over-leverage since you risk more money when the expectancy gets smaller.
No greed. No fear. Just maths.
  • #12
  • Aug 19, 2013 7:32am Aug 19, 2013 7:32am
Quoting stormtrader
{quote} going on smaller time frame now awaiting for a pull back close to my broken trend line for A long with sl below 130 {image}
Rag2riches i hope you dont mind posting here my friend.
fired first long at 130.69 and will add one more if chance given 2 lots with sl 129.93 and targeting 132.25
  • #13
  • Aug 19, 2013 9:47am Aug 19, 2013 9:47am
Nice thread.

IMO the 2 most difficult things that a profitable trader can achieve in his final stage:

1. finding inefficiencies
2. building high r:r approaches

I sometimes pyramide,too.

Please go on and good luck 2 u.
  • #14
  • Aug 19, 2013 9:50am Aug 19, 2013 9:50am
Quoting PipMeUp
I'm eagerly waiting for what Rag2RichesFX will post because all the proposed ideas I could find, in this thread and elsewhere, actually increase the risk and lower the expectancy of any system. When averaging down (stormtrader post#9) the R:R increases but the overall expectancy decreases. That's because the nearer the price approaches the SL the more probable the trade is a loser. You are increasing your risk for a trade which is more and more probably a loser. When averaging up, you add risk just by opening a new position. Especially trailing...
when you have a plan my friend and good money management all you described will not effect your trading... and i shall prove it to you
  • #15
  • Aug 19, 2013 11:16am Aug 19, 2013 11:16am
I'm in! lets see
I know where the market is going to move next: to the righ! XD
  • #16
  • Aug 19, 2013 11:38am Aug 19, 2013 11:38am
Quoting stormtrader
{quote} when you have a plan my friend and good money management all you described will not effect your trading... and i shall prove it to you
Please do so. But I want a real proof! That is mathematically proving me wrong here (and also here as MM is not an edge on its own). Being profitable is quite easy. Being optimally profitable is way more harder. Managing the trade is more important than the entry itself. This thread is about optimizing the R:R this can greatly affect your trading result for a given plan. Unfortunately I have the feeling it won't be affected in the way one would expect. That's why I'd like to read more from the OP: I wish I'm wrong.

It would be great to use your trade as a example because it is a real time example (no cherry picking) to compare the result with and without R2RFX's method applied. Especially to follow the evolution of the risk and the R:R over the time.
No greed. No fear. Just maths.
  • #17
  • Aug 19, 2013 12:08pm Aug 19, 2013 12:08pm
As has been discussed in other threads, pyramiding is nothing more than a collection of individual trades. Stacking another trade on top of an already existing trade does not change the dynamics of your exposure as opposed to closing original trade and opening a new trade of larger position size. In a hypothetical scenario of all things being equal, risk is proportional to reward. Of course not all things are equal in the real market. Your success will depend on finding these inequalities (also known as inefficiencies) and then exploiting them. You could use multiple entries (ie pyramiding) in your approach, but ultimately each trade has to hold up on its own. The end result will be your exit price relative to your AVERAGE entry price, no matter how many individual trades were involved.
  • #18
  • Aug 19, 2013 2:25pm Aug 19, 2013 2:25pm
Quoting PipMeUp
{quote} Please do so. But I want a real proof! That is mathematically proving me wrong here (and also here as MM is not an edge on its own). Being profitable is quite easy. Being optimally profitable is way more harder. Managing the trade is more important than the entry itself. This thread is about optimizing the R:R this can greatly affect your trading result for a given plan. Unfortunately I have the feeling...

Ok then we re on.
My system is plainly bb on 4h timeframe just so we re on the same page also.
I ve just added another position at 130.19 as at 130.10 i have the middle bb with same sl as before 129.93
also 2 lots
and starting capital was 100k
  • #19
  • Aug 19, 2013 3:38pm Aug 19, 2013 3:38pm
Quoting 2+2=4ex
[...] pyramiding is nothing more than a collection of individual trades.
It is even worse. This is a collection of correlated individual trades.

Quoting 2+2=4ex
Stacking another trade on top of an already existing trade does not change the dynamics of your exposure as opposed to closing original trade and opening a new trade of larger position size.
It depends on the SL of each one. The exposure varies over the time. But overall the expectancy decreases in all the cases I could imagine. Set and Forget is the best I could find so far. I was yet unable to prove it is the optimal solution.
No greed. No fear. Just maths.
  • #20
  • Aug 19, 2013 4:10pm Aug 19, 2013 4:10pm
ok keep this thread going. my curiosity is high. I use to do this more before fifo. then after fifo i had problems with first in first out trading with forex.com I now trade with FXDD who still allows this type of trading where can can close any trade you want. Money management is huge in this type of trading. keep your lot size down so you can make a few more trades. I think 1% of your account or less knowing you will add to your trades. I stiil look for these types of trades at the market turn. when the market on an uptrend turns down and creates a lower low i will wait for the retracement and enter at either certain fib levels 61.8 ,5.0,38.2 etc. and compare the levels with resistance levels. and enter at these levels with the same stoploss. I will be looking for some type of divergence at these levels. 3 trades is my limit. my ultimate target would be the 161.8 area compared with support areas.these trades are not that common as i look for them on day charts . keep an eye on the 4hr for entry. look it over on your charts as these can be very rewarding. check out the risk to reward ratios. 2 to 1 is the least amount you would even make an entry with this style of trading and much higher ratios are easy to find. Remember that your stoploss is how you calculate your lot size according to how much money you have in your account. so with 1% risk and a smaller stop the second trade size is larger than the first and the third would be larger than the second. we must calculate this all the time. So the final risk is 3% of your account. lets say for example that your first trade tp was
2 to 1% = 2% and your second trade is 3 TO 1 R/R
3 to 1% = 3% and your 3rd trade is 4 to 1 R/R
4 to 1% = 4%
= 3% = 9% 3% risk = 9% return. if you make it to the 161.8 fib extension you will notice your risk reward will be much better. you can lose 2 out of 3 of theses trades and still make money. Vladimir Ribakovs book SEll the Rally Buy the Valley can explain this technic. i have read it and it is very good. its not exactly the same but it is very close.
now as the market moves in your favor you can add on trades on retracement levels and fractal break outs if the market begins to trend in your direction.
Bill williams trading chaos shows some good technics for adding to your position as the market goes in your favor.
I use the kindle app on my computer and my phone and download books on the cheap thru amazon. I don't post often but figured this is an interesting subject.
PLEASE DO SOME RESEARCH ON YOUR OWN CHARTS!
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