Top 10 Leverage Trading Strategies To Improve Results Fast
This tutorial on the top 10 leverage trading strategies is going to be an article for those of you who already know how to trade with leverage and want to improve your results by learning new skills.
Let’s face it, we all use leverage in order to make more money and sometimes also make more money faster. There is nothing wrong with that, in fact, I highly recommend short-term day traders use a high leverage trading strategy to support a small account.
Sometimes it can be difficult to find an angle of how to approach the market and how to find good trades. We have all been stuck in a traders block where it seems like no matter what we do we can’t get those good trades that actually generate real hard cash.
Today I will teach you some of the most effective leverage trading strategies that I personally use while I invest my own money. These strategies will go hand-in-hand with your own approach and you should use them as a complement to your own ideas.
I highly recommend that you read through them all as I think that strategy number 9 helped me most in situations when I felt a little bit hopeless. It’s more of a mindset when it comes to trading and not so much a strategy but only keeping it in mind will instantly give you a different view.
What is a leverage trading strategy?
A trading strategy in a leveraged market is an idea and a way of executing your trades in a matter where you tilt the probabilities in your favor. It is one of the most important components of a trader’s success and without a proper system and a good framework, you will be stuck in the beginners’ pit for years to come. If you are serious about your investments and want to make real money, at the end of the day, you will have to develop a rigid strategy to win.
Most retail traders think that a strategy is built up of difficult mathematical assumptions and hard-to-grasp indicators that only a math Ph.D. can understand.
That is completely wrong and I will explain to you why.
Strategies are not only about how and where to enter your chosen market, strategies in leveraged trading are about your approach in general.
Markets behave in different ways and the only way to truly understand the currency pair you are actively trading is by following it for a long time and developing principles that later become your strategies.
A strategy is nothing more than a set of rules and your favorite ways to trade a market that you have familiarized yourself with over several weeks or months.
The best traders I know only trade one market and they do it well.
This should give you some hope knowing that it only takes one market and a good strategy to make thousands of dollars.
Why strategies are important in leverage trading
Leveraged trading strategies are important for traders to focus their investment activities around certain opportunities that will, in most cases, generate a profit.
Without a strategy, you are shooting in the dark, and you are going to miss.
I remember clearly when I first started to understand how important it was to have a solid view of how to approach trading. I completely changed my mindset and I started to make better results.
I didn’t go from zero to hero, but for sure, my results went from negative to positive at the end of the month.
The reason I was able to turn my trades around was because of how I looked at the playing field.
Instead of acting ruthlessly at every opportunity, throwing my money into the markets without assessing the situation properly, I became an analyst that scouted the right opportunity.
My trading strategies lead me to only take the best setups after I had checked every point on my list, and then I pulled the trigger.
Now, below are some of my best leverage trading strategies:
1. Momentum trading
Momentum is one of the most crucial aspects of using leverage to your advantage.
Some of my best traders have been with either positive or negative momentum where the market kept going in the same direction for a few hours up to a few days.
The reason why momentum is so good is that once you get on the right side of the trade you will never have to look back.
You are instantly in the green and you can raise your stop-loss order to break even and from there it’s smooth sailing.
If you are used to taking trades in a choppy market that feels “safer” you have probably been stopped out on countless occasions thinking “what is wrong with my trading?”.
This is because you didn’t trade the momentum.
Once you find the momentum you will realize the potential of leverage and your results will improve as long as you are on the right side.
The best way to find momentum is to learn to trade breakouts.
Breakouts either up or down provide the best momentum in any market because it is followed by a series of stop-losses getting triggered and a bunch of hungry traders jumping on the train.
None can tell for how long the momentum will last but as long as you catch the trade you are most certainly going to cash in.
If you catch a good momentum trade early you can without a doubt make your monthly living with only a few trades per month.
2. Short-sell support levels
This strategy goes hand in hand with the previous point.
Short-selling support lines can create massive momentum because it creates a huge shift in the sentiment of the market.
Many traders rely upon and trust support lines but once they break, they break hard.
The bigger the support level the bigger the move.
Since leverage is all about getting on the right side of the trade as soon as possible and maximizing the potential of the buying power, broken support levels make for some of the best opportunities.
The reason why they are so effective comes down to the shift in sentiment.
Image the number of traders that were heavily long above or at the support line.
All of them fear that the prices will fall below their feet stopping them out.
So, when it happens there is a domino effect of triggered stop-loss orders that become market sell orders and the push-down continues.
It might take you a couple of tries before you hit the right entry but with the correct stop loss and some patience, you can make good money.
Now, start looking for a “trusted” support level and wait for it to break.
If it doesn’t break, no problem, there will always be another support level.
3. Learn one market at the time
This leverage trading strategy is very effective.
When I first started out more than a decade ago I was stuck jumping from market to market looking for opportunities and sadly enough, profits.
This didn’t work and it will probably not work for you either.
The reason why jumping between different currency pairs or stocks doesn’t work is that you don’t learn the behavior of either one.
The better choice is to stick to one forex pair and learn how it moves and behaves on a regular basis.
Once you have a good understanding of the most important behavior you can start to pull out the best setups and opportunities.
Now, after you have found the best setups according to your analysis it’s time to go to work.
By only entering the market in the setups you have written down you increase the probability of success by miles.
This is because you understand why you are entering and you have a higher chance of predicting the market.
Do this and repeat and you should see quick results once you have found the top setups.
4. The 1% rule
If you haven’t heard of the 1% rule I am sure you have lost a lot of unnecessary capital.
The 1% rule says that you should only lose 1% of your total risk capital in any given trade.
For example, if you have a total account size of $1000, your 1% loss would be $10.
If you enter the market with $200, $500, or even the whole $1000, your 1% loss will remain the same.
Why is this so effective and why do so many traders use it?
The reason why it is so effective is that if you only lose 1% of your entire stake on any given trade, you will survive many losses before you run out of capital.
Think about it. If you used a different rule that allowed you to lose 20% on each trade, you would lose all your capital if you made a series of 5 losses in a row.
Is it possible to lose more than you invest with leverage?
Yes, it is, but with the 1% rule, you can withstand 100 losses in a row before you go broke.
Now, the good thing with leverage is that you can increase your position size a lot while still keeping the 1% risk.
When you keep your losses controlled and low it’s only a matter of time before you hit a big trade that gives back all your losses and more.
This is how profitable traders stay in the game while testing their setups
Adopt this strategy and you will see how your losses change completely.
This also improves your at the end of the month results by reducing your overall loss profile.
In my opinion, it is one of the top risk management techniques.
5. Use smart stop-losses
A smart stop-loss is a thought-out stop-loss that is not at any risk of getting hunted by algorithms and random market swings.
Let me explain further what I mean.
You should always choose your stop-loss according to the volatility.
If you are experiencing high volatility then you have to use a wide stop and when the volatility shrinks you are allowed to tighten your stop loss.
This is something that not many traders appreciate and they keep the same distance to their stop loss at all times.
This is a big mistake that will cost you a lot of money on nearly 50% of the trades.
If you randomly choose an arbitrage number for your stop loss, let’s say 50 pips or 0.75% you are going to end up getting eaten by the volatility on days when the swings are bigger than average.
You will only be safe on days that the volatility is low and on some days you might even use a protective stop that is too wide and you are not maximizing your potential.
Use an indicator such as Average True Range (ATR) to calculate the daily volatility and then set your stop-loss accordingly.
This will save you a lot of capital and maximize your potential on leveraged trades.
6. Breakouts pays the bills
Breakouts are by far the most profitable and fun setups where day trading with leverage is very effective.
When talking about momentum trades, breakouts are at the top of the hierarchy and if you master this strategy you will not have to do anything else as a trader.
The reason why a breakout is so sought-after is due to how the probabilities work and the risk-reward ratio.
Try our risk to reward calculator to see if your setup has a risk reward ratio of at least 2.
When you enter a breakout just at the time of the break or a little bit after, your risk-reward ratio can be skewed more than 1 to 200.
This means that you can enter hard and very heavy.
With such a skewed ratio you pretty much have no risk and a mountain of upside potential.
This is how the best traders make the most money either in forex or stock trading with leverage.
Once you recognize a true breakout you can be sure that it’s not going to come falling back to you and trigger your protective stop.
This would be a fakeout, something that frequently occurs in the marketplace.
A fakeout is a breakout that quickly turns back into the range only to lure traders to take the bait.
It takes time to learn how to spot a true breakout but I can give you some helpful tips.
A true breakout takes time to develop, the longer the market has been in a range the better it is.
The volatility always shrinks before a real break and it’s almost as if the trading activity disappears.
It’s called the calm before the storm.
Now, when you have learned to locate true breakouts, remember to keep your protective stops very tight and load up on volume as much as you can while staying within the 1% rule.
I have had trades where my stop loss has been as close as 0.01% from my entry while entering with more than 100x leverage.
Those are the trades that can make you rich, or at least pay the bills.
7. Avoid news and stick to your setups
News stories never tell you anything that you don’t already know by looking at a chart.
If you read about it in the news or hear it on the TV, it’s already over and there is nothing you can do about it.
You missed the train.
I have never heard any trader say the following: “I heard on the news that there was an upcoming breakout in Tesla so I bought some and made $2000”.
What you hear is more like: “Tesla surged 15% into new all-time highs this afternoon after Elon Musk acquired company X for their next moon landing”.
In that case, it is already over and the only ones who made money on that trade were the investors who bought Tesla the last year.
So, what should you do instead?
Ignore the news and focus on your own setups.
It is your setups that are going to give you an edge simply because they are studies of the behavior that you have analyzed and written down.
Your setups will be valid in a live scenario and you will always be the first one to enter if you follow a good strategy.
Your own setups also speak to you more than any other story might and they give you the correct information that you need to hear.
Your next step is to start writing down your setups and follow the religiously.
8. Increase leverage on winning trades
This is a big one, I can tell you that.
If you want to learn how professional traders make their biggest wins you better read this one clearly.
Leverage is a powerful tool that can increase your winnings if you are smart or completely destroy you if you are ruthless.
Many novice traders use the same leverage for all their trades, no matter the situation.
This is completely wrong.
You should play around and adjust your leverage as you trade.
Depending on your entry price and the setup you are in you should use leverage ratios from 1:5 up to 1:100 on certain occasions.
The best traders push the leverage meter once they find themselves in a profitable situation.
These situations, or setups, don’t come frequently but when they do you need to be ready to press down on the gas peddle.
If you could grade your setups from 1 to 10 where 1 is the worst possible situation and 10 is a monster winner with nearly no risk you want to increase your leverage on any trade that is an 8 or better.
If you find yourself in an 8 you should quickly realize that it is time to load up pon the gunpowder and hit it large.
This might no succeed every time and that is important to realize because you still want to be within the range of your 1% rule.
However, when you scout an 8 and you truly push it, you are going to make windfall profits.
This is how large professional traders make the most money.
9. Learn the 80/20 rule
As mentioned in the introduction, this strategy is more of a mindset but it carries a lot of wisdom for any trader.
The 80/20 rule basically says that as a trader, you are going to make 80% of your money on 20% of your trades.
Think about that for a second and let it sink in.
20% of your trades will generate 80% of your profits, how is that even possible?
It is very much possible and I will explain how it works.
Trading is very random and so are the results you make on any given month.
It is not a steady nine to five work where you get the same paycheck every month.
The 80/20 rule relies on you as a trader to push your biggest winners to the max, that’s it.
It means that when you find a setup that is an 8, a 9, or perhaps a number 10, you need to hit the market with some juice.
When this trade succeeds you will make more money on that single trade than you have made on the previous 10 winners.
That’s what a sequence of trades looks like for a pro.
Your trading result should look something like this:
- small win
- small loss
- HUGE win
- medium win
- small loss
- small win
- small loss
- HUGE win
- small loss
- Small win
Those are 10 trades where two of them are huge wins.
When you look at it from above it is clear that no other trade matters, except for the huge wins.
Those are the trades you wait for and hit them hard when they come.
10. Write down your setups
The last general leverage trading strategy is to write down your setups on a piece of paper or on your computer.
The reason why this is so effective is that you internalize the setup and you remember the build-up for the next time it occurs in the market.
If you have a notebook of 3-6 solid setups where you describe how the market behaved before you entered you will be much more effective in scouting that setup.
As you write them down you will passively view the market with your setups in the back of your mind.
As soon as you find one of your written-down setups you are ready to enter and you know exactly what to do.
The better you are at writing down the sequence from before to end the better you will be at discovering it in a live scenario.
Rember to go back to your notebook and make adjustments if you find ways to improve and also to keep things fresh in your head.
Mike Bellafiore wrote a book on the topic of creating a Playbook where you write down all your best setups in order to improve as a trader.
I recommend that you read the book if you feel that this could improve your results as a day trader.
Leverage trading strategies are fundamental building blocks of any trader and in this guide, I break down my top 10 strategies for beginner traders. I highly recommend that you read all strategies from top to bottom as they all come together in one way or another.
If you follow these strategies and don’t deviate too much you should see some quick short-term results. If you need further education on the topic, read our guide on leverage trading tips.