Pyramiding is a simple technique often used by traders to take advantage of big moves when the market goes their way.

Pyramiding simply means adding on to existing positions when the market moves in your favour. If you are long two contracts at the start of the trade, you might buy another one when the market moves up again, and another on further gains, and another.... depending on the actual rules of the system you may keep pyramiding the trade until you hold a huge position or you may stop adding positions after a move has gone a certain direction or you may in fact start selling out of your position as the market moves higher.

People often confuse pyramiding with money management, which I will talk about shortly. Pyramiding is a trading technique that works on the assumption that if the market moves in the direction you said it would then you are right, and you should take advantage of being correct on the direction of the market by buying more. It does not take into account the size of your account the way a true money management strategy does, only price action.

Money management techniques do not take market movements into account, they are based only on estimates of future performance statistics as an extrapolation of past performance. A trading technique like pyramiding is used when the market goes your way, and assumes the market will continue to make the same movements, this has nothing to do with proper money management which only looks at account balance and trader statistics.

I will shortly be discussing a number of money management techniques, such as anti-Martingale and Optimal f. These methods relate only to the account size when taking the trade, not the direction of the market. It is crucial to realise that pyramiding and money management are not the same thing.