Written by ohyeah
Analyzing the leverage, most traders think that using low risk leverage such as x10 or x5 is not risky, but on the other side it could be more painful than x400 leverage, why? Some traders use x10 = 1000 pips before stop loss, they take profit at 30-50 pips, so what is at stake? 950-970 pips is at risk. So when you make a wrong move it is really hard to take that you have been beaten by at 30 pip target for take profit. What I’m trying to say is the right usage of this leverage, so if you are going to use low risk leverage or what they call long term leverage, then go for more higher expectations, then take at least hundreds of pips of take profit and don’t go for little pips such as 30 pips because x200 and x100 leverage can get this target.
This kind of trading may go smoothly with streaks but one mistake could ruin it all. So if you are a low risk user, you will be able to get 95-100% trades result to profits, but you are sacrificing hanging trades and paying lots of rollovers. The success rate is irrelevant in Forex trading. 1% trades result to profit could be more profitable than a 99% trades result to profit, How? Take a look at this example; 99 trades successfully take profit of 5 pips = 495 pips. 1 trade hit stop loss of 2000 pips so the 99% trades result to profit is losing 1505 pips, then if you just make it on an opposite way so called 1% trades result to profit, is profitable of 1505 pips. If we could take a look at this picture 1% loss could go a trader to a bankruptcy.
So let put in our minds that a 99% winning rate could be deceiving. If you are going to study it is an irrelevant figure. If we are analyzing charts, we may take 30-50 pips without using x10 leverages, that’s why there are indicators and signs of signals for us to us.
The best way is to set a standard PIP price for every trade just like 1 dollar per pip, with this standard pip price movement the leverage is not that important, the x400 is also 1 dollar per pip, it’s just set for SL of 25 pips. Good leverages of x100 x50 or x25 this leverages could hit your stop loss at safe rather than x10 of 1000 pips that could make your money in stuck for months without gains and have paid rollovers. The right money management is 2-5% per trade, in my opinion. You may have hit your stop loss by 2-5% per trade but you have to be beaten 30-50 times before bankruptcy. The stop loss is there to cut losses, like x10 vs x100 if the market make and instant drop of 200 pips after one hour the x10 leverage already in 200 pips loss and the x100 only suffered 100 pips, then you save 100 pips and that’s great. Always use standard pip price so that x100 could be not so dangerous that could be converted anytime to x10 for you to be able to hedge if you are a hedger.
I hope my article helps a lot of traders and copiers. My next article is for taking advantages of indicators and my indicator the TIME MACHINE.
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Of course using a low leverage gives you protection against sudden market movements which occur on release of data. I would argue that in some instances the use of high leverage would in those circumstances hit a Stop Loss before the market returned to where it should be. I would also suggest that no matter how confident you are with either your own or other's positions and/or analysis by nature the Forex market is prone to sudden and often extreme movements i.e. when large amounts of currencies are moved such as large corporations moving currency. I would suggest that the use of high leverage and/or low leverage forms part of an overall trading strategy and would not discount the use of either. One would also suggest that there are numerous Gurus here on eToro whose use of low leverage is evident when checking their open positions. We could all argue that this would be to protect their success rates but I would guess it's used to minimise loss of capital in so much as more often the not the market gives back what it takes away, it's just a matter of time. As for the roll over fees, often these are negligible when trading on a daily basis and I would class as an overhead. Just a thought on your article's content.
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