forex - how much leverage to use

[bbmac]

The simplest way is to think about what the strike rate (winning trades as a % of total trades) of your edge is at the R:R ratio you use....then look at what the chances of a consecutive losing run of x is at that strike rate...see table below

Let's say your strike rate is 70% at your chosen R:R...at this strike rate the chances of a consecutive losing run of 7 trades over the next 50 trades is 1% ...now 2 things to take into account;

a. Not all losses come consecutively as above - you could suffer a prolonged period of drawdown/losses from non consecutive losses
b. Not all winning trades will result in the R:R target as your trade management may result in less or b/e.
c. You may not always stick to the rules of your edge resulting in more losing (or winning trades) and/or not all trades running to the R:R target if winners.

Now you need to decide what your maximum risk tolerance is - let's say it is a 30% drawdown to your account - you need to over accommodate for this so that it has only a small chance of happening - (most trades that reach their max risk tolerance - never recover that a/c) Ie because of a. , b. , and c. , above let's say this 30% needs to represent twice the number of consecutive losing trades at that 1% possibility for safety so 2 x 7 losing trades = 14 losing trades = 30% of your account, so 100% of your account would effectively be 46 losing trades...which gives a rounded down 2% risk/trade.

G/L

.........if that is the case i believe as BBMAC suggests it really comes down to your system's key stats, is there a math formula to help with this?

 

[resistance]

Leverage should be selected wisely because some times it becomes a killer for traders. With high leverage they will use more margin from their capital , they will do multiple trading that will difficult to manage soon they face margin call.

 

[bigmistake]

Higher leverage higher risk so I only use 1:100, it's safe enough to keep my account away from burning.

I'm trading with Hotforex and leverage can be up to 1:1000

 

[perox]

Higher leverage higher risk so I only use 1:100, it's safe enough to keep my account away from burning.

I'm trading with Hotforex and leverage can be up to 1:1000

Same. That will control ourselves not to increase positions in losing direction.

 

[SuperSnake]

I use 1:50 (I know it is still too much, but, my greed.... )

Personally, I have to agree with 1:10 - 1:15.

 

[bigmistake]

Smaller leverage helps you to avoid the burning fast, but it would make last longer to get enough profit.

 

[Giovan]

Since you will never have "enough money" the best thing is to mitigate risk and let it determine your leverage.
Secondly, as a general hedge fund rule" the more you invest, the lesser leverage you should have and vice versa.
You can recover a loss from a small account by trading small on a big account but you cant recover a big loss using a small account.
Bottom line: its sup to you!