Pyramiding in Kolachi Method:
Rules of Money Management in Kolachi Method say that Pyramiding is allowed in certain conditions.It means that in ordinary conditions it is not allowed.
Let us consider what is pyramiding.To understand it we will have to understand what pyramid is.We know that pyramid has a wide base and its sides are tilting toward axis which connects base to the tip of pyramid.
As we rise from the base the cross sectional area of pyramid perpendicular to axis starts decreasing and as we reach half way up, the cross sectional area is reduced to half.When we reach the tip, cross sectional area becomes zero.
In trading the cross sectional area is infact our risk reward ratio.When we locate a trade, we are at the base of a pyramid.There can be different risk reward ratios in trading.Similarly there are pyramids of hundreds of dimesnions.But here we are dicussing anyone such pyramid.
When we place a trade, we have maximum risk reward ratio available to us, which means we have hundred per cent cross sectional area of pyramid.When trade reaches 50% of the target then our risk reward ratio for a new trade at this point is reduced to half.And at the target itself there is no question of taking a new trade.
Kolachi Method has only motto:to preserve your capital from excessive exposure.
As per Kolachi Method when we place a trade we must have a risk reward ratio less than one to take a trade.We cannot use pyramiding on a trade with such risk reward ratio.
1)When we have a trade in which we have a ratio is 1/3 then we can pyramid it one time prior to or reaching at half way through.
2)The best place to pyramid is diplomatic channel if it satisfies above the above rule.
3)When price moves against your trade in Kolachi Diplomatic Channel and touches the ema and wmachanges slope place the pyramid trade.
4)When price has crossed the half way to target, pyramiding will be suicide.
In Kolachi Method only one pyramid trade is allowed in every 1/3 ratio.Kolachi Method does not cosider pyramiding technique as good one.It exposes you with more risk than you were exposed at the outset.
Now by opening a new trade you have averaged down the cross sectional area of pyramid and thus exposed yourself to an unnecessary risk in greed of few more pips.
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N.B.Kolachi Method and its Rules are copyrighted (2006) under law.
