Why not to trade/scalp with a high leverage?
Why not to trade with a high leverage?
We, scalpers, usually trade with leverage, because our gain from an individual trade is small but only accumulates in a period of time if we re-invest after each trade.
Because of our tendency/ human nature we tend to focus on profits but in the long term it is our losses who determine our success.
Our losses are mainly through stoplosses or liquidations. From this point on, I would like to give examples from my trading strategy.
I always recommend in my published ideas, not to trade with a high leverage.
Here is a basic calculation to show you why I recommend low leverage trading.
In my Trades, the main target is what I call "exit2" which is around 1% change in the direction that we wished for. Sometimes "shit happens" and we crash the stoploss (I will use 2% change as an example).
How many succesful Trades (%1) do we have to manage to overcome a loss by a stoploss (2%)?
That is really different by each leverage.
-By 3x leverage you have to trade around 2.22 times to overcome the loss of a stoploss.
-By 5x leverage you have to trade around 2.37 times to overcome the loss of a stoploss.
-By 10x leverage you have to trade around 2.485 times to overcome the loss of a stoploss.
-By 15x leverage you have to trade around 2.62 times to overcome the loss of a stoploss.
-By 20x leverage you have to trade around 2.87 times to overcome the loss of a stoploss.
-By 25x leverage you have to trade around 3.15 times to overcome the loss of a stoploss.
As you can see, with an increasing amount of leverage you have to be more successful to even break even.
I would say it is Ok to scalp with a leverage of max. 10x, but I would definitely recommend not to scalp/ trade with a leverage higher than that.
We, scalpers, usually trade with leverage, because our gain from an individual trade is small but only accumulates in a period of time if we re-invest after each trade.
Because of our tendency/ human nature we tend to focus on profits but in the long term it is our losses who determine our success.
Our losses are mainly through stoplosses or liquidations. From this point on, I would like to give examples from my trading strategy.
I always recommend in my published ideas, not to trade with a high leverage.
Here is a basic calculation to show you why I recommend low leverage trading.
In my Trades, the main target is what I call "exit2" which is around 1% change in the direction that we wished for. Sometimes "shit happens" and we crash the stoploss (I will use 2% change as an example).
How many succesful Trades (%1) do we have to manage to overcome a loss by a stoploss (2%)?
That is really different by each leverage.
-By 3x leverage you have to trade around 2.22 times to overcome the loss of a stoploss.
-By 5x leverage you have to trade around 2.37 times to overcome the loss of a stoploss.
-By 10x leverage you have to trade around 2.485 times to overcome the loss of a stoploss.
-By 15x leverage you have to trade around 2.62 times to overcome the loss of a stoploss.
-By 20x leverage you have to trade around 2.87 times to overcome the loss of a stoploss.
-By 25x leverage you have to trade around 3.15 times to overcome the loss of a stoploss.
As you can see, with an increasing amount of leverage you have to be more successful to even break even.
I would say it is Ok to scalp with a leverage of max. 10x, but I would definitely recommend not to scalp/ trade with a leverage higher than that.
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