By: Charley Warady

There's nothing nicer than getting into a Forex trade and watch the market cooperate and go your way. Well, there are probably a lot of things nicer, but for a Forex trader, if that's not in your top ten nicest things, then maybe a career change should be in order. To buy into the market and then watch other people buy at higher prices than you did, can add to both self-esteem and margin. Or even if you decide to short the market and watch the bottom drop out, can sometimes cause a giggle or two.

So, while you're watching your trade gain momentum on either side of the market, you're probably not equating this with loads of missed opportunities. Sure, you've made money on the trade. In the meantime, you probably don't want to know about the potentially large amount of money you've left on the table. Put simply, just because you're not scalping doesn't mean you should be inactive. If you're right, you should capitalize on being right. There are a couple ways to do this, but essentially it boils down to the same thing: Add to your winners.

If you start out by buying five at one point on your chart and the market moves your way; the next thing you should do is buy three – or four. Then buy three – or two more. It's the Forex Pyramid. You can also add to your position in the same increments, if you'd like. When you're figuring out your average price, also take into account the quantity of your position. It adds to the pleasure of being right. You're not exposing yourself to further risks because you're price averaging up (or down, if it's a short position). Move your stop-losses up accordingly and your profit remains secure. In the meantime, you've given yourself the opportunity to maximize profits in a Forex environment that is finally moving your way!

Now here comes the red flag. Many a Forex trader has taken the opinion that if this method can work with profits, it can also work in limiting losses. Wrong. Do not add to losing trades. There is no such thing as averaging down. Just because you've added to a losing trade at a lower level doesn't mean you've protected yourself with a lower average price. You've added to a loser. Nothing more. And certainly nothing less. There is only one sure-fire way to handle a position that has gone against you. Two simple words: Get out. Then you take a step back and start over. Pyramiding down has a snowball effect that can be devastating. When a Forex trader does this, he's simply hoping the market will turn in his favor and narrow his losses because he's lowered his average entry price. It's throwing all discipline to the wind, and turning trading the Forex market into gambling. A recipe for disaster.

Pyramiding up, on the other hand, multiplies your gains and, even if the top of the pyramid sustains a minor loss, your stop-loss order to cash in on the profits will ensure the maximum benefits of a trend you successfully jumped on.