Why Leverage is NOT IMPORTANT and NEVER LEADING

15 thg 9, 2020

I see a lot of people still asking 'what leverage are you trading'? and I just want to be clear that "LEVERAGE IS NOT IMPORTANT". It simply gives you the opportunity to trade your setup with more contracts than you have in your account balance. An example:

The maximum amount of risk I take per trade on my total capital is 5%. Let's say I have $5.000 account balance, my set risk is max $250 per trade. On the chart you see two (really bad, don't trade them) setups. The left setup has a tight stop, the right setup has a wide stop.

Tight stop
The tight stop is set to 0.1% on the left chart, meaning if I want to risk 5% of my account, I could be able to just go full APE and 50x my position. 250.000 contracts in stead of 5.000. My max risk will be $250 dollars (250.000 *0,01 = $ 250)

Wide stop
The wide stop is set to 1,5% on the right chart. With 5% set risk, I could be able to use 3.33x leverage, to risk the same amount of $250 dollars.

So leverage is supportive to your original setup. So the right order of setting up a trade would be:
1. Define your max risk (mine is 5%)
2. Look for setups across all tickers
3. If your stop is below 5% risk, you could consider leveraging your position
4. Adjust leverage to your stop, not the other way around.

Leverage is almost always a last tool you have in your setup. NEVER LEADING.

Hope this clears some things out. For questions I'll be happy to answer below