Best leverage to use as a newbie

[brmicha]

Sorry for such a long response, but hopefully, it helps. I have two possible types of entries, so I keep track of their stats separately. It becomes obvious that the reason for the 1 percent per trade risk is because you know in advance that you will lose trades. Let’s say that I have a 60 percent win percentage over time. That means that I will lose 40 out of 100 trades. If my wins are larger than my losses on average, I will make money. My losses will be spread out over 100 trades in a distribution. The 1 percent risk per trade most likely keeps my draw down at a minimum of say, 10 percent. So, at any one time, it is unlikely that I will ever draw down more than 10 percent. If I’m “lucky”, my losses will not come when I first start trading my entry. So, in that case, I will never actually see any draw down of my initial account capital. If my draw down stays at 10 percent or lower, I will only have to make back 11 percent to be back at break even. If I were to draw down 50 percent, then, I would have to make back 100 percent to be at break even. So, that is reason why one wants to keep their draw down as minimal as possible. The markets are a little bit of a strange concept. On one hand, you have repetitive patterns that will play out. When the market starts to trend, over time, lots of people will jump on board. Eventually, it will burn itself out, greedy traders will get caught at the top of an up trend, and the market will go sideways or reverse. While there are patterns, there has to be an element of randomness. I read a book on trading once where there was this story. A guy was working for a trading firm. He told his boss that he didn’t think the market could fall below this support level. The boss called in a large sell order. The market fell through the support. There is just no way that anyone can tell what all is going on, from some idiot getting greedy today to some idiot risking his house, to some master trader buying on swings. So, we are learning to think in probabilities, similar to how a casino makes money, and trading a system where we seek to attain consistency, and understand what the probabilities are over time.

[brmicha]

This is a very small sample of my trading. But, here are some stats I did for the last two days. I would say that my win percentage tends to really run in more like 60 percent over longer periods of time. But, you can see that you can easily still do quite well and still be losing trades. Be sure to look at the average win size as compared to the average loss size. Notice that my wins are about 3 times as big as my losses on average.

[Johny24]

The best is 1:1 to 1:100 for newbie.

[brmicha]

There are just plain so many things that one can keep learning in trading. Often times, traders use candle stick patterns to try to judge reversals of price in charts. If you are looking at time based or tick based charts, the patterns such as the engulfing pattern all have different ranges of price. Some may have small ranges. Some may have very large ranges. You might find that you are taking trades on engulfing patterns with small ranges, and you keep losing. Many traders use range based charts. Particularly, I think a range based chart based on the ATR is very interesting. I can create this type of chart in Think or Swim from TDAmeritrade. This type of chart can give you a more consistent way of judging reversals in price.

[brmicha]

Casinos often times do things such that the long term odds are sort of, fixed, in their favor. For instance, in the US, the odds of roulette are 1 in 37. But, I believe you only get paid out for 1 to 35. So, it is essentially impossible for you to win over time. They understand this, and so, they give themselves an edge with the probabilities such that they can’t lose over time. If you keep playing, you lose. In trading, it is possible on the other hand to put the odds in your favor over time. I guess you start to realize though that when you think in probabilities all the time, people may think you are a little bit strange.

[brmicha]

Most retail traders think, I want to make a bunch of money, or I want to get rich quick. They have a 200 dollar account or whatever. Most professional traders think more like the casino in the above example. They think, all I need to do is gain a slight edge in the probabilities over time. Then, I can make some amount of consistent money on my half a million dollar account over time. Some may think, if I can cash in on 2 percent a month, I am going to be majorly happy. So, the thinking here between many retail traders and the professional traders is like day and night.

[QuadPip]

I haven’t read all the responses to this thread so I might be repeating someone’s response…

Find a broker who will allow small deposits and lot sizes down to 1. Trade with a lot size of 1 until you get consistent success. Aim for a minimum win to lose ratio of 1:2 and an average risk to reward ratio of 1:2. Then slowly increase your lot size.

I presume that you have traded a demo account already. If not start with a demo until you get comfortable with the mechanics of trading.

[Hadden]

i also appreciate trading calculator before entering a trade. its supportive to avoid unfortunate risk and losses but for ensuring a better calculate it more important to have good knowledge and experience.

[brmicha]

I agree. Being over-leveraged pretty much just causes people to throw their money down the toilet. One must have the capability to properly trade a system and trade it with consistency. They must have a low enough risk per trade to be able to maintain a proper equity growth curve over time taking into account how the losses are likely to run in the system they are trading. I just can’t imagine people risking 50 percent of their account per trade, and expecting not to get a guaranteed margin call.