Hi All,
Many Thanks to Ingot and all the other contributors for this fascinating thread. Certainly one of the best I have come across! Very very unusual to see NOT ONE negative comment, no-one getting pompous or aggressive, just an atmosphere of collaboration and learning. EXACTLY what it is all about!
I am not experienced enough to offer much in terms of the system, but one thing I can contribute concerns the latest post by Ingot: LEVERAGE.
To avoid confusion, let me say IT DOES NOT MATTER WHAT LEVERAGE THE BROKER OFFERS. In fact, the higher the leverage they offer the better! Why? (and we must always ask why, just like little kids
as Ingot says)
Because WE DON"T HAVE TO USE IT! All that matters is TRUE LEVERAGE, i.e. the (position size / account balance). For example I have $1000 in my account, and I open a mini lot position for $10,000, my TRUE LEVERAGE = 10,000/1,000 = 10:1.
This is fairly aggressive leveraging, and I would say somewhere between 3:1 and 5:1 is sensible. Now it is obvious to see how position size, true leverage and % risk are related and intertwined. I urge you to get back to high school algebra, get out the pen and paper and define these relationships yourself, you will have a MUCH better understanding of money management if you do.
Some of you will be wondering about my comment that the higher the leverage the better...... well, if we trade a $10,000 lot at 50:1 account leverage, and a $10,000 lot at 400:1 account leverage what is the difference in terms of margin, risk, money management etc?
THE ONLY difference is that you are required to tie up LESS margin with a higher leverage, THAT IS ALL. Risk is the same, TRUE leverage is the same, $/pip is the same. Therefore the higher the leverage the better because if we decide to use a strategy where we look at pyramiding based on total free equity, you can utilise a % of that extra margin that is not tied up in your open position, therefore compound quicker. It does not mean that the % committed on all open trades has to be any higher, or risk has to be any higher, it just means you can compound faster because you are tying up less of your own money.
If I have got all this completely wrong or if any of the more experienced members see things differently please respond as I am moving forward from here with this understanding and would hate to think I have it "arse-about-face"
Thanks again everyone and good luck. Hope that Ingot gets around to "finishing" this thread to his satisfaction.
PS - the only other thing affected by higher leverage is margin calls. Because you are required to submit less margin to secure a position, for a position the same in all otehr respects, the higher leveraged account can have the position go further against you before getting a margin call. The benefit in this case with lower leverage is that after a margin call you have more margin left over! But hey, we should never be getting margin calls anyhow!