Thread by @anguswhitton91

1) I think this is a prudent moment to talk about leverage and #BTC ;

Most new traders use leverage to increase their position size,

Experienced traders use leverage to increase their buying power.

Here's a breakdown;

2) When planning a trade, one of the first steps is deciding how much to risk.

The most widely accepted method for determining risk is to use a % of your total account balance,

eg. $10,000 account, risk less than <3% per trade = <$300 max loss per trade;

3) Most new traders ignore this, and go straight to "how much can I buy with the leverage at 10x?, 20x?, 100x?, etc.

Where as experienced traders use an amount where the max loss on that position represents their predetermined risk per trade amount;

4) Leverage can either be used to increases exposure per trade, meaning it amplify's the ups and the downs,

OR

it can be used to increase the number of total trades which can be taken;

5) New trader:

$10,000 account,
20x leverage,
Buys $200,000 of BTC,

Trader doubles their money if BTC moves up 5%,

BUT

The trader will get liquidated if price moves down 5%;

6) Experienced trader:

$10,000 account,
20x leverage,
Buys $6,000 of BTC,

Trader makes $300 if BTC moves up 5%,

Trader looses $300 if BTC moves down 5%;

7) The new trader gets 1 shot, maybe 2 if they sell before BTC falls the full 5%.

Maybe they win and double their money.
Maybe they do twice in a row.
But when they lose, they lose the majority of their account, or all of it;

8) The experienced trader can make this trade over 30 times before their account is gone, so they get many more chances for the trade to work in their favour.

They can diversify and take a position in ETH, or DOGE, and perhaps one of those trades will have a different outcome;

9) The experienced trader uses #Leverage as a tool to increase buying power,

NOT as a tool to increase risk per trade;

10) If you got #liquidated last night,

It wasn't because a scam wick,
it wasn't because manipulation,
it wasn't because whales are trying to steal your coins,

It was probably because you used leverage for the wrong reason, or you have bad / no risk management;

11) Don't beat your self up though, this happens to even the most seasoned of market participants - the #archegoscapital event is an example of this;

12) The allure of using leverage to enhance rewards traps people every day, always has and likely will for some time.

If it pulled you in and burned you yesterday, take this as an opportunity to learn how to use leverage in a more sustainable way.

Theres always another trade.