How to do Intraday Pyramiding?

Knowing stuff and executing it with perfection and profitability is what matters when trading. For instance, I might know about RSI but not how to trade with it.

So, for a while I have been pondering on how to successfully do pyramiding and rather than reinventing the wheel, looking for readymade resource from people who know about it. While many talk about it, nobody tells how to do it or know the execution.

One has to think about quantity/lot size, SL, when to increase the quantity, where to modify the SL, what should be the Reward: Risk. When talking about pyramiding most traders just stick to basic definition. In trending stock, increase the position quantity. But that's just partial answer.

Firstly, suppose you have a risk appetite of ₹20,000/- trade and you decide to do pyramiding. Your stop loss is Rs. 20/- so your quantity should be 20,000/20 = 1000. Now what if in your first trade you hit stop loss. In first trade itself your risk management has gotten you out. So there need to be a set system for it.

Secondly, in equities or futures, you buy or a sell a stock, there is plenty of points for it to fall or rise. So, it is doable. Still needs some tweaks. But doable.

Problem arises when applying pyramiding on options. Options of Nifty and Bank Nifty to be sold OTM are 100 - 200 Rs. and in a day, we see these options go from ₹10 to ₹100. I have practically shorted an option for Rs. 300/- and trailed it till Rs. 37/- and hit ₹500/- from there on. In that kind of scenario, there needs to be a set system for Pyramiding because when you do increase position on a winning trade, you also increase your average buy price or reduce average sell price. Locking in profit at some point is also necessary.

This is how it can be done systematically.

We need a stock/future/option which has a chance for a trend full day. While I have my own method such as #IntradayExplosion or VCP to determine trending stocks, readers can use there own way of filtering trending stocks. For a pointer, some professionals shortlist stocks from Top Volume Gainers during the first trading hour and trade it after little experienced analysis. Its just another method. For our example, we will pick Reliance. Do note that this is an example on how to do Pyramiding and not exact buy or sell signal.

At this blue point, I had suggested one of my friend to not sell his long term Reliance stock holding. Even I went long at this point. I posted this trade on my telegram channel.

Above horizontal line, this circle represented all time high. After that price went sideways.

For proper pyramiding, one has to think systematically. So let us assume our loss taking capacity for the day is ₹10,000/-. Pyramiding means we increase position size when we are winning. That means we have to survive the first stoploss and ride the trend. That also means that if the trend is strong, we might have to take position on every successive break to upside.

Risk for the day = ₹10,000/-.

In a day with 6 hours of trading there can 3 to 4 consolidations and breakout on 3 - 5 minute charts.

So considering 4 trades, our risk per day is ₹2500/trade.

Consider this chart below:

1. We initiate a trade when Horizontal Channel is broken.

   1. Trade 1: Execute at 1635, SL at 1622. Risk is 2500 so quantity is 2500/(1635-1622) = 190 shares.

2. Trade: Execute at another horizontal break. Increase position at 1690 with SL at 1675. so quantity is 2500/(1690-1675)=165.

   1. Now total quantity is 355 at an average price of 1660 and trail SL at 1675 which is we are already in profit.

3. This way we add position at 1739 and 1789 till we are out from our trail sl. This is how the excel calculation of the 4 pyramiding look like.

This is how pyramiding is to be done. Now one can say that I have picke Reliance which was trending. But this is not about signal but about how to do pyramiding systematically. What are the benefits this way:

Many traders will tell you that they have a risk of 10,000/-. They never tell that what is the system they follow to execute. They never take that first total risk of 10000 in one go but take small risk and then keep on increasing the position.

When doing in option selling, same can be used for Intraday ATM Bank Nifty options, because premium is in the range of 200-300

In this example we have a reward:risk of 3:1 at the end of 30000:10000.

Same can be applied on end of day charts on carry forward positions also. Share in comments if this is helpful.