Pyramid Scaling

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#OPINIONLEADER#

 

Let’s say you see a potential trade and believe it will bounce off a Fibonacci Retracement line. Remembering that you can only risk 3% of your capital on any trade you decide to place your entry order near the line (let’s say the. 382 level) to make sure you get this market move if it happens.What you would do is risk only 1% of your capital to start and watch to see if the market goes in your favor (bounces off that Fibonacci line) or not.

 

If it does not, and extends below (perhaps moves through the 382 level towards the. 500 level),you can analyze the trade to ensure you are still comfortable with it. If you are, then you can place another order (average down) risking an additional 2% which takes your overall trade risk on this position to 3%.This is pyramiding as the top of your position has less weight than the bottom.

 

Remember though, that scaling does NOT give you free reign on extending past any of your other risk parameters. Rather, it is used in conjunction with them as many times traders who use this quickly forget about the other money management rules.

 

#OPINIONLEADER#

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