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Margin kills
- Thread starter bat1
- Start date
Quote from bat1:
seems like when I trade on margin my performance
get's worse..don't know the ''WHY'' but it does
anyone else notice this?
Ed
Tons of big hedge fund players are getting wiped up now for exactly the same reason. Carlyle: 32:1 leverage.
Its the most common problem, and is due to lack of tolerance for drawdowns. Leverage only changes your magnification to moves in the mkt, and you feel (and are) like a big loser if you are overleveraged, often exiting trades that aren't bad with proper leverage in loss mode.
death by 1000 cuts is magnified with leverage, and requires a more thoroughly thought out and quantified system to just -survive-.
Three reasons:
1. Geometric average can be negative. You need to choose a correct leverage (I plan to write a piece on this). There is a guy who wrote a book (a professor) and fell for this trap.
2. You do not play in a deterministic and constant way. Impact point 1.
3. You may do not understand well enough leverage.
Read the article below and you will understand.
1. Geometric average can be negative. You need to choose a correct leverage (I plan to write a piece on this). There is a guy who wrote a book (a professor) and fell for this trap.
2. You do not play in a deterministic and constant way. Impact point 1.
3. You may do not understand well enough leverage.
Read the article below and you will understand.
[/B][/QUOTE]You are absolutely correct HoldyGrail. It is one of the reasons people in forex trading for instance lose their capital. They do not even know that house leverage is a source of their death. I read a short article here that I think explain well this point in the case of forex.
http://www.trading.thelogicgirl.com/
Leverage should only be used on a trading style that is consistently profitable. Secondly, usually one uses more leverage for shorter time frames for scalping intraday highs and lows. Otherwise, you need to step back and use smaller size and open your time frame to days or weeks, versus intraday.
It sounds to me like you're underfunded. If you're underfunded, you're better off working for a couple years and building up a sizable account, otherwise that leverage will be tempting and will eventually wipe you out if you can't stay disciplined.
I think that is the main reason many traders fail. They start with a small account with the dream of trading for a living, but get wiped out from small moves that were magnified by the leverage, even if their setups were good.
It sounds to me like you're underfunded. If you're underfunded, you're better off working for a couple years and building up a sizable account, otherwise that leverage will be tempting and will eventually wipe you out if you can't stay disciplined.
I think that is the main reason many traders fail. They start with a small account with the dream of trading for a living, but get wiped out from small moves that were magnified by the leverage, even if their setups were good.