Pyramiding (Scaling Into Positions)

Pyramiding recognizes that you have more certainty about the direction of a trade after the market has moved in your favor. Adding to a winning position is lower risk than adding to a losing one.

**Classic pyramid structure:** - Tranche 1: 50% of intended position at breakout confirmation - Tranche 2: 30% of intended position at first pullback/retest - Tranche 3: 20% of intended position at second continuation signal

**Why pyramiding works:** - Your first entry is proven directionally correct before you add capital - You're adding at prices that confirm the thesis, not against it - Each additional tranche raises your average cost but also raises your confidence level - Risk on each add can be defined relative to the running profit (adding at cost or better)

**Stop loss management in pyramiding:** As you add tranches, move stop losses to protect the overall position: - After Tranche 2: Move Tranche 1's stop to breakeven - After Tranche 3: The entire position's stop can be moved to near-breakeven - This creates a "free trade" situation where you've reduced risk while adding exposure

**Pyramiding vs. averaging down:** | Aspect | Pyramiding | Averaging down | |--------|-----------|---------------| | Direction | With the trend | Against the move | | Confidence | Increasing | Hoping | | Risk | Reducing relative | Increasing | | Psychology | Disciplined | Emotional |

**Position size risk:** Each add in a pyramid should be smaller than the previous. Reverse pyramiding (adding more as position goes against you) is dangerous — this is how traders blow up.