Radjanews/forex- It is no secret that many traders, both experienced and new, always want to get as much profit as possible every time they trade. As is known, of course forex trading has many of the same goals, namely many strategies that can be profitable.
What is the Pyramid Strategy in Forex Trading
The Pyramid Strategy is an aggressive trading strategy that can generate up to 2-3 times more profits against strong trending market conditions. Even so, this strategy does not mean there is no risk. If the trend reverses, there is a risk to this strategy. The pyramid strategy is done by increasing the trading location by the same lot size if the predicted trend is still moving in that direction.
Within that goal, the pyramid strategy aims to increase profits. In reality, this strategy is similar to an anti-martingale strategy, where you add to a position when you make a profit on your previous position and expect the market to continue moving as expected.
If you predict that the trend is still in the same direction, then the prediction must be correct, and if the prediction is wrong, you need to minimize the error. The success of using this strategy depends entirely on controlling the odds, especially if the trend is reversed.
The success of this strategy is determined by the size of the risk/reward ratio. This is a minimum of 1: 2. In other words, the probability is determined to be less than half of the desired profit. Therefore, if the probability of R (risk) = 1, then the target profit (reward) = 2R.
However, there is one important caveat. When using this strategy, don't assume that you need to run a pyramid just because you have the opportunity to increase a profitable trading position.
It should be noted that this strategy can be used when the market price movement is very strong or when the price movement during the day is fast. However, if market conditions fluctuate, the trend is weak and looks suspicious, then the use of this pyramid strategy is not recommended.
There are two important keys to consider when using this pyramid strategy.
1. Before implementing this strategy, you need to make sure that there is a long trend in the future.
2. Close the position as soon as you predict that the price will go in the opposite direction.
While this strategy looks attractive with the temptation of big profits, the pyramid strategy is just like any other trading strategy, with its strengths and weaknesses.
Advantages of the Pyramid Strategy:
You can make more profit in one period consisting of several transactions. Conditions are so good that you can make multiple transactions as if the opportunity only came once.
Weaknesses of the Pyramid Strategy:
When the market reverses or occurs, the last open position is lost and the total profit made from it is reduced.
Ref : radjanews.com