Hi Guys,
In this "How To" tutorial, we look at one of my favorite ways to trade. I generally use this technique for very large trades, but it suited for all position sizes.
What we are going to look at, is a technique of DCA that makes use of leverage instead of equity to better an entry price should the trend go in the opposite direction of the order side. This method requires the user to trade low leverage so it might not be suitable for everyone, but it is a method i recommend especially for new traders and even those who have been trading for a while.
In this example, we are going to assume we have an account of $10 000, again, this will work with any size account, but for the sake of the tutorial, we are going to say we have and account of 10K. When entering a trade, its always best to do your homework and have the advantage of probability on your side, so i always advise traders to do some TA and have a look at what other experienced traders are saying. However, there will ALWAYS be a trade that goes against everything the charts are saying, that's where our technique comes in.
Now, as always, I will never advise a trader to risk more than 5% of his/her portfolio in a single trade, but today we will risk a bit more just to show the capabilities and benefits of leverage DCA. In this trade, we are going to risk 10% of our equity and enter a long trade on ETH/USD pair. I will explain the entire process using the colored lines plotted to the chart.
Green - This is our entry price, after doing some TA and homework, we are now certain that the price will go up & take our trade. We risk 10% of our portfolio in this trade and place a long/buy order, our entry price is 3037.85 and our position size is $1000.00 and our leverage for this order is 1x.
Yellow - All of a sudden, the trend reverses due to some news, whale closing/selling off some ETH or any other reason and our order begins to go into a negative. In this example I have decided to use a 3% DCA target. What i will do here is when the price reaches my target, I will increase my leverage to 2x (double) and then open another $1000.00 long position.
Blue - We now have a new average fill/entry price of 2993.25. Whist we are increasing the position size, we are still only risking that 10% ($1000 x 2x leverage) we initially had intended to risk in this trade, but we have a 1.5% better entry price than where we had initially entered. As you can see by the liquidation calculator, using 2x still keeps us very safe from actually needing to worry about getting liquidated.
Orange - At this point, the price continues to move down and we now target another 3% as the point of our next DCA, price hits and as we did before, we double our leverage as well as our position size. Again, in total, we have a 3+% better entry price, but still only risking 10% ($1000 x 4x leverage)of our equity as we had initially intended to risk in this trade.
Purple - The trend has now turned around and our order is in a 1.65% profit. We can close the trade or we can try and make up a bit more profit at this point. What i recommend is to close a portion of the trade in profit and if you are sure that the trend has now reversed and are comfortable to let it run for a bit, then do so.
All in all, we have maintained our risk in this trade to what we had initially planned to risk while giving ourselves a much better entry into the trade and keeping our liquidation price at a safe distance, without using any extra equity.
Now, to understand, that NO TRADING TECHNIQUE comes risk free, using this technique becomes dangerous once leverage starts to increase over a certain level and liquidation starts to move close to market price. In order to use this, ALWAYS make calculated DCA percentages and once you go over 10-12x (or wherever you feel safe), it time to make the call, take the loss or wait it out. Whatever you decide, you now hopefully have an advantage that you can use again and again to keep your portfolio building.
Please post any questions in the comment section if you arent sure about anything explained here and i will do my best to get back to you with a suitable answer.
Best Of Luck To All Traders!!!!
In this "How To" tutorial, we look at one of my favorite ways to trade. I generally use this technique for very large trades, but it suited for all position sizes.
What we are going to look at, is a technique of DCA that makes use of leverage instead of equity to better an entry price should the trend go in the opposite direction of the order side. This method requires the user to trade low leverage so it might not be suitable for everyone, but it is a method i recommend especially for new traders and even those who have been trading for a while.
In this example, we are going to assume we have an account of $10 000, again, this will work with any size account, but for the sake of the tutorial, we are going to say we have and account of 10K. When entering a trade, its always best to do your homework and have the advantage of probability on your side, so i always advise traders to do some TA and have a look at what other experienced traders are saying. However, there will ALWAYS be a trade that goes against everything the charts are saying, that's where our technique comes in.
Now, as always, I will never advise a trader to risk more than 5% of his/her portfolio in a single trade, but today we will risk a bit more just to show the capabilities and benefits of leverage DCA. In this trade, we are going to risk 10% of our equity and enter a long trade on ETH/USD pair. I will explain the entire process using the colored lines plotted to the chart.
Green - This is our entry price, after doing some TA and homework, we are now certain that the price will go up & take our trade. We risk 10% of our portfolio in this trade and place a long/buy order, our entry price is 3037.85 and our position size is $1000.00 and our leverage for this order is 1x.
Yellow - All of a sudden, the trend reverses due to some news, whale closing/selling off some ETH or any other reason and our order begins to go into a negative. In this example I have decided to use a 3% DCA target. What i will do here is when the price reaches my target, I will increase my leverage to 2x (double) and then open another $1000.00 long position.
Blue - We now have a new average fill/entry price of 2993.25. Whist we are increasing the position size, we are still only risking that 10% ($1000 x 2x leverage) we initially had intended to risk in this trade, but we have a 1.5% better entry price than where we had initially entered. As you can see by the liquidation calculator, using 2x still keeps us very safe from actually needing to worry about getting liquidated.
Orange - At this point, the price continues to move down and we now target another 3% as the point of our next DCA, price hits and as we did before, we double our leverage as well as our position size. Again, in total, we have a 3+% better entry price, but still only risking 10% ($1000 x 4x leverage)of our equity as we had initially intended to risk in this trade.
Purple - The trend has now turned around and our order is in a 1.65% profit. We can close the trade or we can try and make up a bit more profit at this point. What i recommend is to close a portion of the trade in profit and if you are sure that the trend has now reversed and are comfortable to let it run for a bit, then do so.
All in all, we have maintained our risk in this trade to what we had initially planned to risk while giving ourselves a much better entry into the trade and keeping our liquidation price at a safe distance, without using any extra equity.
Now, to understand, that NO TRADING TECHNIQUE comes risk free, using this technique becomes dangerous once leverage starts to increase over a certain level and liquidation starts to move close to market price. In order to use this, ALWAYS make calculated DCA percentages and once you go over 10-12x (or wherever you feel safe), it time to make the call, take the loss or wait it out. Whatever you decide, you now hopefully have an advantage that you can use again and again to keep your portfolio building.
Please post any questions in the comment section if you arent sure about anything explained here and i will do my best to get back to you with a suitable answer.
Best Of Luck To All Traders!!!!