A Question About Trading with Leverage
Question:
Hi Pete
According to you, which is better:
mass profit with a potential for mass destruction (in my case, 2% risk per trade with a 10 point stop loss)
or moderate profit with a potential for moderate destruction (e.g., 0.2% risk per trade with a 10 point stop loss)?
I ask this question because I wouldn’t hesitate to use leverage if the risk for a massive draw down in a single trade weren’t existent.
How to Trade with Leverage
Answer:
This is a great question.
The answer must be addressed in the context of the quality of the idea.
Many books will teach a generic formula for risk but the fact of the matter is some trades have higher probability.
Your job as a developing trader is to identify when probability is higher or lower and adjust your leverage accordingly.
Think about Real Estate. If you have a great property in a great neighborhood with great profit potential you would have no problem borrowing more money to finance the deal.
Trading is the same way.
I am not saying to deviate from your 2% often but sometimes the charts line up perfectly and opportunity is greater.
Great traders simply trade bigger on better ideas.
A key to remember is this does not mean you go βall inβ on your initial entry.
You can work the beginning of a trade and add as it proves itself.
Being aggressive can also mean, multiple positions and holding trades longer.
Pete