Leverages, the higher the better?

Now that we have understood the basics of pips, lets get pippin to understanding leverages.

Rule of thumb, the lower your leverage the better. I'm not saying that you shouldn't take advantage of margins allowance but remember the higher you margin, the bigger the amount you can risk and what we want is not to allow you to get burnt out when you have just started to get a feel of things. Hell even the pros dun risk more than 2% and take advantage of lesser than 10:1 leverage.

This is how you should calculate your risk averse:

Lets assume our risk averse is target at 3% per trade. How do we position ourselves and setup a strategy to risk trade the correct amount of contracts without losing all our equity?

* Equity : 50,000
* Risk : 3% = 1500
* SL : 50 pips
* Pair : GBPUSD
* Lot : Standard
* 1 Pip = US$10 (Since the pair is a ***/USD)
* Stop = 50pips * US$1 = US$500
* Position Size = $1500 / $500 = 3 Standard lots
* True Leverage = (3*100000) : 100000 = 3:1

Remember if your true leverage goes above 10:1 then you are having serious MM issue, i will bet your account will burn out faster than a passing meteorite.

The rule does not change. The lower your risk the longer you stay in the game. In the very liquid market of forex trade , the only reason many are still trading is because we know how to control our losses. Making money is not even half the battle, controlling losses sets a pro trader and an amateur trader apart. read more you can input forex forum study .

Risking 2% per trade

With 2% risk per trade, on a mini account (1 buck per pip) would means that at most you can risk is 20$ (20 pips) loss on a single trade. In fact, I set the risk/trade at 2%, because at 1000$ with a 1% risk, there is nothing much you can do since you can only risk at most 10 pips on a mini per single trade and that number is only possible if your account will not drop below 1000$. Therefore 2% risk/trade on a 1000$ is at least workable for some pairs. Take note that pip figure will go down further if you incur more losses along the way using that 2% risk / forex trade rule.

Now breaking down to daily basis on your presumption of that out of 10 times, 7 are winners. The trader did not mention what is the sequence because the sequence of winners and losers can have an impact of your dollar risk per trade because the MM we are using is 2% risk/trade.
Example:

* 7 winners out of 10 times, the first 2 were losses:
* trade #1 is a losing trade -20$ (2% risk/trade) *for trade #2 at 980 as capital on a 2% risk/trade, you can only afford to lose 19.6 dollars
* trade #2 is a losing trade -19.6$ (960.4$ left in the account) *for trade #3 at 960.4$ as capital on a 2% risk/trade, you can only afford to lose 19.20 dollars per trade.. and so on. With this kind of scenario, it is even harder to achieve a higher % of winners. So it is highly unlikely you will achieve that on a consistent basis.

Risking XX$ per trade instead of %

Example:

* 7 winners out of 10 times, since you are risking in term of dollars value per trade, then the sequence of winners and losers does not matter.

Now let's say you can consistently win 7 out of 10 times on a daily basis, and considering you make 10$ on a single trade with risk:reward at 1:1, that is a 40$ profit (net 4 winners). 40$ profit of a 1000$ account = 4% ROI on a single day. Considering a 20-trading day per month, you would have achieve a profit of 800$ (40x20) if you can do it consistently. In terms of %, that is a whopping 80% ROI for the first month. Not impossible, but you have to have a proven strategy and iron-clad discipline to do it. Moreover, under this example, your strategy must not risk more than 10$ per trade, which is also 10 pips. you can click here forex forum