Pyramiding and Financial Spread Betting
Identifying an effective all-weather approach to spread betting is a process that requires the maximisation of winnings and a reduction of losing positions, in order to optimise your trading fortunes. While the markets are capable of moving heavily in both directions, the dynamic trader armed with a robust trading strategy should be able to perform in all conditions, in order to deliver an aggregate trading profit. One such strategy is known as pyramiding, which enables traders to build up momentum behind strong trading positions in order to reap the full benefits of the markets moving in your favour.
What Is Pyramiding?
Pyramiding involves adding weight behind winning positions as they start to turn in your favour, in order to maximise your earnings from a particular trade. Say, for example, you're betting on the movement of the FTSE and the market rises by 20 points. A pyramiding strategy would require you to increase your exposure to that position, perhaps by an additional 20-50%, in the hope that the position continues to move in the right direction.
The major benefit of pyramiding is that you're backing a market that has already proven itself to be successful. Rather than leaping in blind in the hope that the market will move in your favour, a well-timed pyramiding strategy will simply add to your winnings by further leveraging an already successful position - in this respect, the risk profile of entering a new trade is diminished, and the opportunities for delivering a larger profit enhanced, as compared with just allowing the position to run.
Risk vs Reward
That's not to say that pyramiding is a risk-free strategy for spread bettors, and as with leveraging in all its forms, the extent of possible losses becomes even greater the more heavily exposed you become. The plague of the pyramid bettor is the market reversal, and for this reason positions that have been amplified should be monitored with extra caution. That makes pyramiding a pure question of timing - if a position moves into the positive, tentatively increase your exposure as the market continues to rise. Don't sit on the fence and dither - successful pyramiding demands decisive action and sharp decision making, but the potential rewards make it a worthwhile judgement call to make.
The rewards of spread betting pyramiding can be vast. Remember that each point movement is a multiple of your stake won or lost, thus by increasing your stake amount behind successful positions your returns can grow exponentially. On this basis, pyramiding is a highly effective strategy for helping to regain ground lost on other transactions, and if applied correctly, it can help ensure that a numerical minority of winning trades is enough to profit overall.
Pyramiding isn't so much a strategy in its own right, in that it doesn't dictate which positions you should back or which markets to enter. What pyramiding brings to the table is the full benefits of leverage, and as a trading technique it ties in perfectly with the concept of nurturing winning positions and cutting losing positions - the core recipe for success with spread betting.