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Pyramid trading is a strategy that involves scaling into a winning position. In other words, strategically buying or selling in order to add to an existing position after the market makes an extended move in the intended direction.

Pyramid trading compounds your winning trades into two or three times the initial profit potential while reducing your overall exposure.

Therein lies the best part about pyramid trading – if done properly, you aren’t exposing yourself to any additional risk. In fact, you are actually mitigating your risk as the trade moves in your direction.

The standard pyramid, which is also known as the scaled-down pyramid or upright pyramid, starts with a large initial position and is followed by predetermined additions that decrease systematically in size as price moves in the indicated trend direction. For example, if the initial entry was for 100 points, then as price moves to the next predetermined level add 50 more points, then 25 more at the next level, then 13 more, for a total of 188 points.

The inverted pyramid, which is also known as the equal amounts pyramid, adds to an initial position in equal position size