San Diego bobl 20:23 GMT October 23, 2008
Leverage and stops:
There are a couple simple guidelines that all traders, especially those with little exposure to the markets........
1) NEVER take a big hit; this is the single biggest account killer
2) Never let a strong winner turn into a loser; you should always have a plan which includes a spot in your direction where you take some off the table, up to half, to ring the cash register and let the remainder ride with b/e stop until the reason you made the trade no longer exists, then get out and go on to the next trade
3) Never attempt to "get back" at the market. Be mindless... memory related to money is harmful to traders. Do not trade the money.......some traders even need to eliminate the P/L reporting on your open positions.
4) Know exactly where your reasons for being in a trade no longer exist, and make that a hard stop loss. A general guideline is to limit total risk to 2-4% of your equity. If that is hit, take a break, study your trade and the information that moved the market. Then..........forget it.
5) Leverage should not be used at all until you show some consistancy in your trading (making money). Then, study where your strengths and weaknesses are; i.e. maybe you trade the commodity currencies well consistantly but have mixed results in majors. Then, obviously, you'd begin your leverage build trail from your personal strength.
6) Use leverage slowly and cautiously, but always only use leverage on a winning trade, i.e. adding to a winner.
I've been trading 35 years, and my MAX leverage in FX is 10:1 and that's when I have been successfully building a great position. Do not open a trade with 10:1 leverage or anything close to that.
Bottom line.... trade successfully, then build your position sizing.
Hope these simple guidelines help.
Good Luck and Trading,
San Diego bobl