Well I think its because people have a poor understanding of margin/money management and leverage.
I think its what you describe 4xstar. Where people open too many positions and don’t fully realize the risks that they are taking when they have a high leverage. I mean an easy example would be 100:1 or 400:1 on a 500 USD account.
At 100:1, a 1k lot on GBP/JPY costs approx 20 USD.
At 400:1, a 1k lot on GBP/JPY costs approx 5 USD.
Its written all over the site here to never risk more than 3% of your total account. So people go for the 400:1 and open 4 lots where as the person with 100:1 leverage would only open 1 lot. (each of these is 4% of your 500 USD account)
The trick comes in that at 100:1 with 1 lot open you are playing about 0.09 USD a pip and with the 400:1 with 4 lots open you are playing about 0.38 USD a pip. So with the 100:1 you can sustain a 5000+ drawdown, but with the 400:1 you can only sustain a 500 drawdown :eek:
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I think if you wanted to really blame anything, its that people don’t sit down and take the time to work out the arithmetic. Just exactly how much drawdown can I sustain, exactly how much of my account am I using/risking if I open ‘X’ amount of lots, etc.
Its the same if you look at people deciding win/loss ratios instead of taking into account the risk/reward ratio aswell. So many people look for a 90% winning strategy even if its only 5 pips and they risk loosing 50 pips. But a 40% winning strategy that wins 100 pips and loses 40 pips will beat the first system. In fact the first system ends up being unprofitable over the long run.
Andrew what is your timeframe on the candles below, is it always 3 hour?
I just got a LL at 212.76 and another at .88, I plan to sell the second at +25 pips and let the first one run to +100 if it is Her Majesty’s pleasure, of course.
There is two types of leverage.
The leverage to open the position (ie deposit required) be it at 100:1 or 400:1, all is different is your deposit ie 1% of lot size or .25% of lot size. The pip value is the same for both. so the risk the same…you will make or loose the same amount of $ regardless of leverage.
Then there is true leverage…which is different,
That is the leverage of your account in relationship to your open position.
The broker platform wont tell you this, the broker figure is for the one above, this true leverage is something you calculate yourself…if you want…i dont…but it is true here that the higher leverage the greater risk, because your account isn’t as big as your open position.
if you have $1000 account balance: and you open a $10000 lot (pip value=$1) your true leverage 10:1 but you may be using the 400:1 broker leverage to open the position so you deposit the $25. Therefore you have $975 left to lose/risk.
If you have $500 account balance: and you open a $10000 (pip value=$1) your true leverage 20:1 but you may be using the same 400:1 broker leverage to open the position so you deposit $25. Therfore you have $475 left to lose/risk.
Therefore the higher true leverage the more risk.
The higher broker leverage then just means less deposit, more margin available to play with…open positions etc…
True leverage is where the risk is associated.
If your true leverage was 400:1 it would mean you would be opening a $10000lot with only only $25 account balance, so as soon as you open the position with the brokers 400:1 leverage it would cost $25, therfore your balance would be $0.
if you used the brokers 100:1 leverage you couldnt even open the position cause you would need $100 deposit (ie account balance would be -$75 to open position
Ah! Thank you for that … finally I think I understand leverage and what true leverage means … I mean, I knew the definitions but did not fully get how they worked in practice.
Did you see the spreadsheet I made? traderstar dot com/excel-link.htm.
Maybe you could check it out & see if the formulas are correct, I think I am almost there. If so, this could be a useful tool to help people figure out how many lots they can own or how much dd they can take based on acct size & leverage.
I still have my LL at 213.28. I got one at 212.49 and 212.25 scalped both of those for 45 pips between the two of them.
SItting with just my loss leader, I got a good nights sleep, she looks a little toppy now but same plan. 212.49 212.20 211.65 and I will thicken them up depending on market considtions. But all of this is mechanical and no indicators. As If I was using an indicator, it would have told me to sell at 213.28, but looks like she dipped and is back.
If you had more margin than me or a higer risk tolerance you shold have made more than 45 pips last night. But nonetheless made those pips while I was sleeping. And 45 pips a night isn’t so bad while you are sleeping
Sorry I didn’t make that clearer: that was on the 1H, though there was actually the same pattern building on the 3H; but, the 2200 ET candle didn’t step up to confirm. Good upside pips off the hammer on 0400 ET at fib fan support, though! That was the higher low we were looking for - now to see if NY pushes this over the edge.
I had to sell my LL for 34 pips. I am flat GJ again, looking to get long around 213.00/20 she is going to have to come down and get me. My last LL was @ 213.28 so 34 pips on that was good but looks like I could have rode it all the way a few pips hugehr into the fib.
In any event She needs to come down and get me as I will be away today so I want to get one lower.
/me waves to m2p on the sidelines.
I think she is very violently going to jump up, But hope she comes down to get me, if not I will miss the bus. BBL
GJ Stats for the week so far 77 pips and with that I am off
Yes this leverage-margin-risk thing is a tricky one to fully understand but until you fully understand it, I don’t think you can be successful in the long term,
That’s why I made the spreadsheet that you can play with the numbers and see how many positions can be opened with X account dollars and Y max drawdown or how much dd can the account sustain with X acct dollars and Y positions open.
You can find it at traderstar dot com/excel-link.htm. I’m still awaiting feedback from those more expert than me, but I think the calculations are pretty close & hopefully will provide a more visual way of understanding leverage & margin use.
…so I made a new spreadsheet. The first one helps determine your maximun safe position size for various account sizes. This one takes that information and will give an idea of how long it could take to double an account. For example if you have a $1k account, you max positions should be 10 micro lots. If you earned an average of 20 pips per day on each (say 4 x 2 micros scalped for 25 pips each + one position x 2 micros allowed to run for 100 pips, so average 20 per micro (200 pips total divided by 8 + 2), it would take about 11 weeks to double the account … numbers can be played with for endless hours of entertainment
traderstar dot com/excel-link.htm
In my own trading, I have one left at 212.76 from last night, one at 213.54 and one at 212.29 … hoping to cash out in the low 60’s, do not have a lot of hope for another run to the 80’s so will take what I can get.
She does love her fibs … has been dancing on them all day.
She spiked down a few times in an effort to get me but was quickly run back up. I’d say she is showing a bit of bouancy. No matter I have one LL and one way or another she has to come to me up or down
Where I added fat lines for m2p a 50 and a 200. Somehow I lost that chart.
that 5 200 thing I still dont fully understand. But you miss way too many pips that way from the beggining. Often as I am buying as price is going down I do get one all the way at the bottom. My problem is impatience and selling this one off too early for 11-30 pips or something when if I held it for the run I could have gotten 100 pips or more.
Every time she runs down, she retraces up sometime afterwards, she is almost like an elevator, you never know who is getting on where and where she is going NEXT. You may know where she is going eventually. But I for one dont want to be on an elevator with her all day going up and down. IT os far too emotional for me. When I see 34 pips I have to take it.
Especially if things are looking like they are topping out ST.
I figure I will sell and buy again lower or at the same price on the next dip. Often I miss her and she speeds off and up without me.
Where I always WANT to go with her is DOWN. Because I know how she is, what she does, and how she does it. She is so predicatable and if you study her moves and get intimate with her she will talk to you too
[B]“All things are difficult before they are easy.”[/B]
Thomas Fuller
As I can imagine this trading strategy is now easy for grader, and probably was hard at first. It goes against what your mind thinks is the only acceptable way to trade. But often we are set in our mind about a certain belief we have, and it ends up just NOT being true.
Those that trade this way really go against the trend. The trend is not my friend. My friend is a wild girl that runs down hard, and all the while most folks are selling, I am buying and boom she makes a sudden U turn,then I start banking pips. Drawdown is your friend, Not the trend. I guess on the way up, you are with the trend. But many buy on the way up.
As price hits 213.00 they buy long. Then price hits 213.20 and they go long
price hits 213.40 and they go long. I do not do this nor do I advise it.
When do you stop? Are you going to keep going long higher and higher?
That doesnt make as much sense to me as going long lower and lower.
Oh well much pips to everyone this week. I earned 6 cents in interest!
Once she breaks down hard, they think the bottom is falling out and they sell,
it doesn’t take her long to get oversold when everyone but us is selling her!
I dont know if they will even come that far, but maybe overnight they may push her down there however briefly.
Anyways I am counting on it, but if she doesn’t run down then there won’t be many pips.
I like going to bed long and waking up into london in the green or deep in the red is even better. London is always the most wild. It is nothing for her to run 100 pips in less than an hour. She runs fast! Way faster than any bear!!!
My solution to this is (especially when I think the entry price is a good one), I buy in pairs. I set a tp for one at +25 but no tp for the other one so it can run if that is her pleasure (which it often is…)
As I couldn’t wait for her to get down to .20 or lower. She is looking very bottomish right now in the ST. Even if the daily looks mad down. Many things look like she is heading down, keep an eye on her heart it never lies.
And thatis all she has to rely on other than her steady rollover interest.
That was the higher low we were looking for - now to see if NY pushes this over the edge.