How I look at leverage is pretty basic. If the instrument you are trading moves 0.5% and your account moves 2%, then your leverage factor is 2% / 0.5% = 4. If you are trading multiple instruments then it gets more complicated, but just knowing this is basic risk preparation. It lets you know what you are in for if a catastrophic event occurs while you are in a trade.
Ex. Trading with leverage factor of 5 and no stop...go long and overnight your market craters 5%. You just lost 25% of your account. If that was in your risk profile, then fine. If you weren't expecting that as a possible outcome, then you were not using proper risk management.
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I will just repeat myself, but I will try once again. I read lot of stuff even from most experienced traders with which I disagree. Forgive my arogance, but I am allways trying to make my own decisions. That is why I allways suggest to make a backtest and papertrade for a while. If you papertrade long enough with a system (not just monkey style clicking) you will soon find out what is the system capable of. The difference between the real money and papertrade is mostly your psychology. So if there is a huge difference, you know what do you need to work on (there are also other things like slippeage but this is not the thing which makes difference).
I think we are mixing apples and oranges here. You cannot have the same expectations as swing trader trading 1mil. account, doing 3-6 trades per month and daytrader trading his small 20k account with 1-5 trades per day. Totaly different approaches, different amount of time invested, different account, different risk. IMO uncomparable.
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Although this can become very complex, it is acceptable to limit the drawdown to be _ % of your account. So if you have a $20,000 account, and a 40% drawdown, that 40% will be $8,000. Use that to calculate your leverage.
I think if you are day trading futures or stocks and not aiming for 10% per month (a very high goal), you shouldn't be day trading.
If you are (only) looking for 3 to 5 percent per month, there are easier and less stressful methods than day trading - by finding a good theta decay options strategy. Check out some of the strategies by well-respected options mentors like Dan Sheridan or John Locke ( a lot of info is freely available, although they have mentoring services too). Positive theta, monthly strategies allow for good returns without being tied to your screen 24/7.
These strategies are especially good for those who still have regular jobs.
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Oh, and one more thing. These types of options strategies are highly scalable (on big indexes like SPX or RUT).
On Tastytrade, they recently highlighted a retired 50+ year old woman who started trading one type of positive theta strategy with $100,000. Due to her success, friends asked her to manage some money for them, and now she is running a $100 million + fund, running the same relatively simple premium selling strategy.
Focus on a Solid Foundation, then Look to Achieve the Return
The $ amount you make is highly correlated with how much $ you're prepared to lose. The more you risk, the more you can gain (or lose).
% return can be very misleading. With highly leveraged products you don't need to hold all the funds of your trading capital in your trading account and the % return of your trading account can be very high.
Once you have a very good system and very good trading skills (a solid foundation), a goal is to increase the amounts you are trading to make it worthwhile and meet your financial objectives.
The amount you trade should be appropriate for the skills you have as a trader. Trading too high an amount too early will give you unnecessary stress and take the focus off building a solid foundation.
I think the $ you make trading is more important than the % return. A high % return on a small number still equals a small number. The focus should be on making trading pay for a great lifestyle.
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