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Anyone using high leverage successfully?

  • #1
  • First Post: Dec 16, 2005 8:51am Dec 16, 2005 8:51am
In the BWILC book, the author states that if you use high leverage,
such as 100:1 or more that you WILL fail and that you should use at
most 4:1 leverage. Is anyone in the FF forum trading successfully
using very high leverage?
  • #2
  • Dec 16, 2005 9:39am Dec 16, 2005 9:39am
Quoting mmills4x
In the BWILC book, the author states that if you use high leverage,
such as 100:1 or more that you WILL fail and that you should use at
most 4:1 leverage. Is anyone in the FF forum trading successfully
using very high leverage?
Yes. I have been quite successful in the past using high leverage to consistently lose money. It is really an amazing and powerful tool. I now keep my high leverage locked away in a glass display case along with a collection of useless indicators, worthless trading "secrets" and a bottle of arsenic.

Dial
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  • #3
  • Dec 16, 2005 10:28am Dec 16, 2005 10:28am
Quoting mmills4x
In the BWILC book, the author states that if you use high leverage,
such as 100:1 or more that you WILL fail and that you should use at
most 4:1 leverage. Is anyone in the FF forum trading successfully
using very high leverage?
Regarding BWILC, I have found that my initial understanding of the author's use leverage was incomplete. Yes, he advocates using only 1:1 or perhaps 2:1 for each entry. But his trades consist of multiple entries, with each entry entered and exited at different times from the others. By having a trade with five entries, each leveraged 2:1 you then have a trade with 10:1 leverage which is now adjustable by dropping or adding entries as the market swings through the authors median grid.

Personally, I am comfortable with up to 10:1 leverage (but absolutely no more). 10:1 leverage, combined with 100 pips yields a 10% gain in your account over whatever time frame it took to get the 100 pips. (week, month, fortnight, whatever). Let's call that time frame a compounding period.

Can you get 100 pips per Quarter (3 months)? Do that four quarters in a row and you have an annual return of 46%. With a compounding period of three months, it only takes 49 of them, or 147 months to take $10,000 to over a million dollars. Want to take that $10,000 to a million in five years? Then do the 100 pips every 37 days. Think you can do 100 pips a week? If you can, then you'll hit that million in 49 weeks.

See? It DOES NOT take high leverage to get rich. It only takes 100 pips per compounding period at 10:1 leverage.

A note to newbies however: Until you've gained enough experience, please, PLEASE limit your leverage to 1:1.

Dial

P.S. I've written the above while sleepy and I've got the nagging feeling that my math is off, but I don't see how. So, feel free to correct me if I'm wrong. Thanks!
Dial
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  • #4
  • Dec 16, 2005 12:08pm Dec 16, 2005 12:08pm
Dial,

Ok this is going to sound stupid but I promised I'd ask a lot of stupid questions in the PF and I'm just getting warmed up.

For 1:1 leverage on a mini account does that mean I should have a minimum of $10,000 in the account and only trade one mini lot?

Thanks,

Scott
Still haven't found what I'm looking for...
  • #5
  • Dec 16, 2005 1:25pm Dec 16, 2005 1:25pm
Quoting Scooter
Dial,

Ok this is going to sound stupid but I promised I'd ask a lot of stupid questions in the PF and I'm just getting warmed up.

For 1:1 leverage on a mini account does that mean I should have a minimum of $10,000 in the account and only trade one mini lot?

Thanks,

Scott
Yes that is correct. But I would not trade a $10,000 mini account. It would be better to put that $10,000 in a micro account so you can trade 10 micro lots and still only be leveraged 1:1. This gives you a lot more flexibility if you are trading a system where you'd like to take partial profits during a trade.

I should have said for newbies to limit their leverage to no more than 1:1. With $10,000 in a micro account, trading a single lot would give a leverage of 0.1:1 (one tenth to one). Very conservative, and it has the added advantage of trading real money from the beginning rather than using a demo account.

Now I will grant that you won't make a lot of money trading a single micro lot. But for new traders, their focus should not be making money. It should be learning how to trade correctly. (Hey, I can be an idealist can't I? )

Once a new trader has made say, 20 trades, some winners, some losers, and is showing a profit after those 20 trades, then they can bump the leverage up to 2:1. After 20 more trades and still showing profit, bump it up to 3:1. If they ever complete 20 trades with a loss, they should drop their leverage back down a notch.

All of the above is just my opinion of course, but I wish I had started out that way. I'd have a much larger account now if I had.

Dial
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  • #6
  • Dec 16, 2005 2:24pm Dec 16, 2005 2:24pm
Wouldn't it be less risky to use very high leverage if you are
using a good automated trading system?
  • #7
  • Dec 16, 2005 2:34pm Dec 16, 2005 2:34pm
Quoting mmills4x
Wouldn't it be less risky to use very high leverage if you are
using a good automated trading system?
Why do you think that would be the case?
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  • #8
  • Dec 16, 2005 3:53pm Dec 16, 2005 3:53pm
If the automated trading system you are using trades the buy and sell signals
fairly accurately, then it seems to me using high leverage would be less risky, as opposed to manually entering orders. For example, on 12/15, I had the auto trading system running on the NZD/USD and I was filled short at .7075. At the time I am writing this, the trading system is still showing short, with the price at .6905, an unrealized gain of 170 pips. The trading system will close the position when the next buy signal is generated, but I will have made at least 170 pips profit on my short trade. If I had been using low leverage my profit would be much lower. Sometimes there are buy and sell signals generated soon after each other which causes some small losses because the buys are filled at the top of the candle and the sells at the bottom of the candle, but the large gains more than make up for the small losses. Therefore, please explain how using very high leverage can be risky if you are using a good automated trading system?
  • #9
  • Dec 16, 2005 4:04pm Dec 16, 2005 4:04pm
Quoting mmills4x
Wouldn't it be less risky to use very high leverage if you are
using a good automated trading system?
So what's the difference between a good automated trading system and a good non-automated trading system?? They both have drawdowns, don't they???

If the presumably "good automated trading system" experiences a nice normal 30% drawdown, then I assume that quadripling the leverage will just ruin the account during the first string of losses...Do you want this to happen to your good automated trading system anyway?? I hate losing money anyway


Thanks,

Nader
  • #10
  • Dec 16, 2005 11:35pm Dec 16, 2005 11:35pm
A good automated trading system triggers fairly accurate buy signals near support and sell signals near resistance, and good buy or sell signals during
consolidation, with few buy or sell signals during whipsaws. In my previous post where I stated the automated system filled me on the NZD/USD at .7075 (short); if for some reason the pair turned around 10 minutes later, for example, and increased 100 pips, the automated system would have closed my short position and filled me with a buy on the NZD/USD. I would have lost about 20 - 30 pips between the short and the buy, but made 100 pips on the new buy position. Whereas, if I were trading manually, and I entered a short position on the NZD/USD at .7075 and used 30 pip stop and the pair turned around 10 minutes later and went up 100 pips, I still would have lost 30 pips, and if I manually entered a buy after it turned around, I also would have made 100 pips. But if after the pair turned around and went up 100 pips I missed the buy signal if trading manually because I couldn't watch the computer
when the move occurred, but the automated system filled me on the buy signal. The difference between the two, is I would have made much more money trading at 400:1 leverage with an automated system than trading manually at 4:1 leverage. I am not going to lose 100 pips with a good automated trading system because the system will generate a signal
in the opposite direction before that happens. If trading manually and using stops, there is the chance the broker will either take out your stop or not
guarantee your stop, which is more risky. If anyone can convince me otherwirse, please do so before I open a live account. So far, I have not experienced any huge losses with the demo, only numerous gains.
  • #11
  • Dec 17, 2005 12:31am Dec 17, 2005 12:31am
Quoting mmills4x
A good automated trading system triggers fairly accurate buy signals near support and sell signals near resistance, and good buy or sell signals during
consolidation, with few buy or sell signals during whipsaws. In my previous post where I stated the automated system filled me on the NZD/USD at .7075 (short); if for some reason the pair turned around 10 minutes later, for example, and increased 100 pips, the automated system would have closed my short position and filled me with a buy on the NZD/USD. I would have lost about 20 - 30 pips between the short and the buy, but made 100 pips on the new buy position. Whereas, if I were trading manually, and I entered a short position on the NZD/USD at .7075 and used 30 pip stop and the pair turned around 10 minutes later and went up 100 pips, I still would have lost 30 pips, and if I manually entered a buy after it turned around, I also would have made 100 pips. But if after the pair turned around and went up 100 pips I missed the buy signal if trading manually because I couldn't watch the computer
when the move occurred, but the automated system filled me on the buy signal. The difference between the two, is I would have made much more money trading at 400:1 leverage with an automated system than trading manually at 4:1 leverage. I am not going to lose 100 pips with a good automated trading system because the system will generate a signal
in the opposite direction before that happens. If trading manually and using stops, there is the chance the broker will either take out your stop or not
guarantee your stop, which is more risky. If anyone can convince me otherwirse, please do so before I open a live account. So far, I have not experienced any huge losses with the demo, only numerous gains.
So far........ Two tiny words, but oh so heavy in meaning. With your automated system, the computer it is running on and the broker you are using can you answer yes to the following.

Is it a certainty that your system will never quit working because the basic nature of the markets have changed? Ever?

Is it a certainty that the computer running the system will never crash? Ever?

Is it a certainty that you will never experience 10, 15, 20 or more losing trades in a row? Ever?

Is it a certainty that your broker will execute your entries, limits and stops every single time with no exceptions whatsoever? Ever?

Is it a certainty that a catastrophic move in the market will never occur? Ever?

Is it a certainty that in the event of a catastrophic move in the market that your broker will execute your entries, limits and stops without exception? Ever?

If you answered no to even one of the questions above, then it is a certainty that high leverage will kill your account.

I only have your best interest in mind when say this: Professional traders focus on how much they could lose and on methods to limit those losses. They know that by controlling losses, the gains will take care of themselves. Amateurs are so focused on how much money they can make with high leverage, that they are blinded to risks of loss.

In my post above, I illustrated that with 10:1 leverage on a $10,000 account and only getting 100 pips every 37 days, your account will grow to over a million dollars in just five years. You can do the same thing with 5:1 leverage and getting 200 pips every 37 days. The secret to making money in this business is compounding, not high leverage. By the way, anyone who can't get 200 pips every 37 days shouldn't be trading in my opinion.

I hope this has given you pause to ponder and I truly hope you will decide to center your success on risk management and compounding rather than the false promise of high leverage.

I wish you all the best.

Dial
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  • #12
  • Dec 17, 2005 2:28am Dec 17, 2005 2:28am
Thanks Dial, you convinced me. I'll be joining the PF next mo. and look forward to it.
  • #13
  • Dec 17, 2005 4:31am Dec 17, 2005 4:31am
Quoting mmills4x
In the BWILC book, the author states that if you use high leverage,
such as 100:1 or more that you WILL fail and that you should use at
most 4:1 leverage. Is anyone in the FF forum trading successfully
using very high leverage?
I use 100:1 and 200:1 but I limit lot size. I think high leverage is not as dangerous as lot size. High leverage allows you to trade with more lots than low leverage. With 5000 $ account it does not matter you have 100:1 or 400:1 leverage if you trade with only 10K lot. Also it depends on currency pairs you trade.
kiss the trend
  • #14
  • Dec 17, 2005 5:02am Dec 17, 2005 5:02am
Quoting fx-trader777
I use 100:1 and 200:1 but I limit lot size. I think high leverage is not as dangerous as lot size. High leverage allows you to trade with more lots than low leverage. With 5000 $ account it does not matter you have 100:1 or 400:1 leverage if you trade with only 10K lot. Also it depends on currency pairs you trade.
It's the same my friend, to open positions using a 10K lot with your $5k account, means that you are using a 2:1 leverage even though your broker gives you a leverage of 400:1, it doesn't matter....High leverage means that you open a position of 200k with your account at $5k, which means that you are using a 40:1 leverage...Higher leverage used means more lots used for the same equity....


Thanks,

Nader
  • #15
  • Dec 17, 2005 6:10am Dec 17, 2005 6:10am
Quoting narafa
It's the same my friend, to open positions using a 10K lot with your $5k account, means that you are using a 2:1 leverage even though your broker gives you a leverage of 400:1, it doesn't matter....High leverage means that you open a position of 200k with your account at $5k, which means that you are using a 40:1 leverage...Higher leverage used means more lots used for the same equity....


Thanks,

Nader
OK I understand what you mean,
10K lot for 5K account means I use 2:1 leverage for this trade.

thanks for clarifying
kiss the trend
  • #16
  • Dec 17, 2005 9:27am Dec 17, 2005 9:27am
I don't understand why the fuss about high leverage. I have traded for the last 3 years and 1 1/2 fulltime with 100:1 all the way up to 400:1.

Yes I have losing days but thats my fault not my trading leverage. Leverage is my friend. One of my favorite plays is a simple simple ema cross on the hrly with trendlines S&R etc.. all my usual tools and when we have a nice run I log onto my 400:1 account and let her rip for never less than 20 pips sometimes as high as 60-80 before my signls tell me to exit.

Now these trades do not happen every day as I am very particular about the setup. But when they do I make more in that trade then I used to make all month at my old job.

IMO bad etiming on entry is the culprit and not trading with HARD ASS RULES..The little genie on your shoulder used to get me into all sorts of troubles until I found my way.

Cheerios
  • #17
  • Edited 11:59am Dec 22, 2005 11:15am | Edited 11:59am
Quoting diallist
Can you get 100 pips per Quarter (3 months)? Do that four quarters in a row and you have an annual return of 46%. With a compounding period of three months, it only takes 49 of them, or 147 months to take $10,000 to over a million dollars. Want to take that $10,000 to a million in five years? Then do the 100 pips every 37 days. Think you can do 100 pips a week? If you can, then you'll hit that million in 49 weeks.

See? It DOES NOT take high leverage to get rich. It only takes 100 pips per compounding period at 10:1 leverage.
I trade at beteen 5:1 - 30:1, i dont use any trading system ( automated ) i only use my own skill and judgement. I like to trade pairs that offer a good interest rate reward. The pairs i like for the " Tomnext " interest rate payments are:

GBP/JPY= 2.17 pips Long position
EUR/NZD = 2.1 pips short
GBP/CHF = 2.0 pips Long
USD/CHF = 1.0 pip Long
USD/JPY = 1.0 pip Long

These rates are the rates given to me and i'm sure they vary with different brokers, the pips obtained are each over night position held, so 2.17 pips monthly = approx 66 pips for each month held.

My favourite pair to trade is long GBP/Chf, its got a current trading range of 2.25- 2.30.

The way i gear my margin is to be in the situation where i trade say 2 contracts on a 4:1 then another say 3 contracts on a 25:1 all long, then i will take out an hedge on GBP/USD with 3 contracts to help the GBP/CHf with a short, overever this is still risky i know, but so far i have done well.

A = GBP/USD

B= USD/CHF

c= GBP/Chf

A x B = C

Sometimes when Dollar weakness occurs this Hedge can go against me bigtime, but my margin theory so far has stood the test with plenty in hand .

Here is an example, one day the dollar has bad weakness.

A = 1.96 b=117.00 c will equal 2.2932.

If my Entry points say are A = 1.85 and C = 2.27 then i will not get a margin call on my theory, like wise if we have the reverse and GBP weakness my hedge works out too using the same applied maths A x B = C

So i am chasing time rather than pips on scalping, this i have found to make me a better trader because i wait for a real top on 4 hour rsi charts before i even consider dropping them or some of the position.
  • #18
  • Dec 22, 2005 5:47pm Dec 22, 2005 5:47pm
Quoting pipwizard
I don't understand why the fuss about high leverage. I have traded for the last 3 years and 1 1/2 fulltime with 100:1 all the way up to 400:1.

Yes I have losing days but thats my fault not my trading leverage. Leverage is my friend. One of my favorite plays is a simple simple ema cross on the hrly with trendlines S&R etc.. all my usual tools and when we have a nice run I log onto my 400:1 account and let her rip for never less than 20 pips sometimes as high as 60-80 before my signls tell me to exit.

Now these trades do not happen every day as I am very particular about the setup. But when they do I make more in that trade then I used to make all month at my old job.

Cheerios
Pipwizard.... Indeed you do sound like a wizard!!! Would you care to share any of your favorite setup methods? Perhaps in another thread? Thanks for any advice.
Don Life is expensive, but includes a free trip around the sun.
  • #19
  • Jan 16, 2006 9:32pm Jan 16, 2006 9:32pm
I am new to forex and I opened up a small account. I've traded equities before but never forex. I've gone as high as 25:1 leverage (and I made money on it) and use 5:1 (without a thought) for standard trades.

As scary as this may or may not seem, my logic is that if I wanted to trade with only the money I had, I could stay in stocks. Leverage = opportunity (positive or negative is up to you)
  • #20
  • Jan 25, 2007 2:47am Jan 25, 2007 2:47am
Quoting diallist
Once a new trader has made say, 20 trades, some winners, some losers, and is showing a profit after those 20 trades, then they can bump the leverage up to 2:1. After 20 more trades and still showing profit, bump it up to 3:1. If they ever complete 20 trades with a loss, they should drop their leverage back down a notch.

All of the above is just my opinion of course, but I wish I had started out that way. I'd have a much larger account now if I had.

Dial
Very very Basic quote, but that has actually helped me alot in the physiological department.

I think every newbie comes in expecting or LUSTING to make millions, no doubt, including myself.

I personally think these comments are very important, and you can sort've reward yourself with higher profits as you increase in strength.

Cheers dial
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