How to Pyramid or Scale into positions

forex-trade-desk-traderPyramiding or Scaling in is a technique used to add into your winning positions so as to increase your risk:reward ratio while maintaining your set risked amount. It is best used in a good trending market, and worse in a whipsaw market.

The concept is that you add another position to your trade when the price has moved in your direction for a set amount of units. At the same time, you adjust the stop losses for your previous trades so that the risk profile is controlled. For example, you went long a certain currency at 1.0000 with an initial risk of 2% with stop loss of 20pips. You plan to scale in at every 10 pips at 1% risk per scaling in.

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