Can Pyramiding Strategies Multiply Profits?

Experienced traders trading Contracts for Difference, Forex, Futures or Options will all tell you that one of the simplest ways to increase your yearly return in the markets is through pyramiding. Today we'll take a look at whether day traders can actually use pyramiding strategies to multiply their trading profits.

What do you mean by pyramiding?

Pyramiding is the process of adding to your existing position and it may be done whether you are in a losing or winning position. So you might have bought 1000 Rio Tinto CFDs at $70 and when the price rises to $72 you buy another 1000 shares, bringing your average price in at $71. There are traders who call this as averaging the trade which is also right. Keep in mind that you can always add to a position that is on the losing end which is known as the average down and this is often called the fastest means to a poor house.

What have the turtles got to do with pyramiding?

A group of 13 traders which were started Dennis and Bill Eckhardt called the Turtles were so far the most successful and consistent traders in the late 80’s and early 90’s and a lot of them have gone on to attain incredible personal success. Curtis Faith is perhaps the most famous of them and he has come up with 2 excellent trading books. The Turtles earned huge amounts of money and they attribute it to their strategy of pyramiding into the trend with the use of the commodity systems. They used a certain way of calculating to add to winning positions every half N in which N is the representation of the calculation of the volatility of all the commodities. If the pyramiding scheme is a great help for achieving the most successful trades then for sure it is going to be a great help for you as a retail day trader as well.

Can Day Traders employ pyramiding?

One of the key characteristics of Day traders is their need to trade over the short term and not ride winners for any length of time. A hard core type of day trader will not hold a position past the market’s close since their wins and losses will only be small. They rely heavily on the opportunities that are presented throughout the entire course of the day as they take advantage of the positive expectancy of the trading system. As a rule, those traders who cut their wins off short, instead of letting them run, cannot maximize their returns from pyramiding strategies. So generally speaking, the pyramiding strategies is more suited to the medium or long term trader or investor but not to the day trader.

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