Dcumentation - Position size and pyramiding

Position size is a fundamental element of trading strategies on the Psyll platform, determining the amount of capital allocated to a single trade or order. In combination with the pyramiding mechanism - the systematic addition of subsequent positions to increase market exposure - this parameter dictates the total capital commitment for a given trading session. The Psyll platform provides users with complete autonomy in configuring position size, allowing for precise risk management, optimization of potential profits, and adaptation of strategies to individual financial conditions.

Total capital commitment is calculated by multiplying the size of a single position by the number of positions added through pyramiding. This structure enables users to forecast their maximum investment level, which is crucial for maintaining financial discipline and aligning with personal risk tolerance. In practice, this mechanism supports both short- and long-term investment goals while minimizing unexpected exposure.

Key advantages

Managing Risk: Setting a precise position size lets users cap their potential losses, which is especially critical with high-pyramiding strategies. This gives you more control over your risk exposure.
Forecasting Investments: By defining your position size, you have a clear understanding of your maximum capital commitment from the start, simplifying your budget and planning.
Maximizing Profits: The right position size, when used with pyramiding, can greatly increase your returns during positive market trends.
Strategic Adaptability: You can easily adjust your position size for various strategies, allowing you to try out different approaches as market conditions change.

Setting the bot's position size

On the Psyll platform, position size is a parameter configured individually for each trading bot in the Trading account > My bots > Selected bot. The user defines the capital value allocated to a single position, expressed as an amount of the base asset, which allows for detailed financial planning. The flexibility of this configuration enables users to freely adjust the parameter, taking into account their available account balance, the bot's historical performance, and current market trends.

Configuration Flexibility: Users independently determine the size of a single-trade position, allowing for precise investment planning.
Impact on Risk and Profit: A smaller position size limits risk but may reduce potential profits, while a larger position size increases both potential profit and risk.
Interaction with Pyramiding: Position size, combined with the number of additional entries from pyramiding, determines the total possible capital commitment for a trade.

Pyramiding analysis

The Pyramiding Analysis, available on each bot's page, shows the historical use of the pyramiding mechanism in a given bot's transactions. The data is presented in the form of a chart and a statistical summary, allowing for a quick assessment of how often the bot maintains a certain number of open positions simultaneously.

Position Progression Chart - Displays the number of positions maintained by the bot in successive trading orders to visualize the data. Each point represents the moment a position is entered or increased. This allows for a visual determination of whether the bot operates cautiously or more frequently uses intensive pyramiding.
Frequency Table - Shows how many times the bot maintained a specific number of positions. This information allows an assessment of the actual use of pyramiding compared to the set limit and helps in adjusting the capital strategy.

Thanks to Pyramiding Analysis, the user can make more informed decisions regarding bot settings, adjusting the strategy to their own risk tolerance and desired investment style. The Pyramiding Analysis is also available in the Strategy Builder.

Capital commitment calculation

The total capital commitment is determined by multiplying the size of a single position by the maximum number of positions in a pyramiding strategy. This approach offers clarity and a predictable outcome. For instance, a position size of $100 with a bot forecasting a maximum pyramiding of 5 positions would result in a maximum capital commitment of $100 × 5 positions = $500.

In practice, bots seldom utilize the full pyramiding potential because of their integrated protective features and prevailing market conditions. The Psyll platform provides sophisticated statistics, such as the average pyramiding position count and the actual capital commitment, allowing for ongoing, real-time strategy tracking and refinement.

Example in practice

Here's an example to show how it works:

A user sets up a bot with a single position size of $200.
The bot is configured to pyramid up to a maximum of 8 positions
During a trade, the bot first opens a $200 position. When the market is favorable, it adds three more positions, each worth $200.
This brings the total capital used for this trade to $200 x 4 positions = $800.
As the market moves favorably for bot, pyramiding lowers the average price of the position, which boosts the potential for profit.

Position sizing and risk level

To illustrate the impact of position size on strategy and risk level, let's consider an example with the following assumptions: an initial capital of $1000, a bot's maximum pyramiding of 8 positions, and an average pyramiding of 1.32 positions. Depending on the chosen position size, three main approaches can be distinguished. Based on the set position size, different strategy profiles can be created:

Aggressive Strategy

Single position value equals $500

Maximum possible pyramiding: 2 positions.
No reserve for additional entries or hedging.
High profit potential with favorable signals, but also high risk of losing a large portion of capital with pyramiding greater than 2.
The strategy assumes that the bot will achieve the average pyramiding at most.

Balanced Strategy

Single position value equals $200

Maximum pyramiding: 5 positions.
Assumes that the bot will pyramid orders above the average pyramiding, while maintaining a small safety buffer in case of greater pyramiding.
Better balance between potential profit and risk control.

Conservative Strategy

Single position value equals $100

Maximum pyramiding: 10 positions, which is more than the bot's full pyramiding of 8.
Large capital reserve for fees, managing price fluctuations, and additional transactions.
The safest approach, minimizing the risk of large losses, but limiting profits.

Notes

Capital Planning: Users must ensure that there is sufficient capital in the account to cover the maximum engagement resulting from position size and pyramiding.
Balance between risk and profit: Too large a position size can lead to significant losses in case of unfavorable market movements, so it is recommended to adjust the position size carefully.
Monitoring statistics: The Psyll platform provides detailed data on the number of positions and capital engaged, allowing users to continuously assess the effectiveness of their strategy.
Strategy testing: It's worthwhile to experiment with different position sizes in combination with pyramiding to find the optimal settings for a given trading style.

Strategy Builder

The Strategy Builder is a tool included in the bot's trading panel, created for investors who wish to deliberately adjust their trading bot's settings to match their own preferences and risk tolerance. It allows for an easy way to specify how much capital should be dedicated to a particular strategy. The feature is available in the trading panel under the "Open Strategy Builder" button, which allows for fast implementation of changes without complicated setup.

The whole process is based on an analysis of the bot's historical results and its response to market movements. The Builder automatically prepares a few operational variants based on position pyramiding - a strategy of gradually increasing transaction size while a signal is active. This enables the investor to see how various approaches affect capital exposure, potential profits, and the risk level associated with the possibility of pyramiding.

Find out more about the Strategy Builder: https://psyll.com/en/documentation/trading-bots/strategy-builder

Conclusion

On the Psyll platform, position size is a crucial part of the trading strategy, and when combined with pyramiding, it allows users to manage their capital and risk with precision. The flexibility to determine position size and access to detailed pyramiding statistics enable users to optimize their strategies to meet their investment objectives. Through the mindful planning of position size and the number of pyramiding entries, users can maximize their gains while simultaneously minimizing risk, making the Psyll platform a comprehensive tool for traders at different levels of expertise.

Position size and pyramiding

Trading bots