🅱️ Market Psychology | The Downside Of High Leverage

٢٨ يناير

Why the high leverage?

If you have a capital of $500,000, why would you go as far as doing 20X, 30X or even 50X?
What's the point?

The supposed reason is to make lots of money, fast.

It needs to be fast because the leverage is so high, if the market doesn't break in your intended direction right away you are almost certain to be liquidated in a matter of days.

The actual reason is the truth, which is greed.

To answer the question: Why the high leverage?
In that case we will reply with: Because of greed!

It is indeed greed based on market psychology.

You could easily win with 2-3X in whichever direction you choose because the risk is so low... If the market doesn't break in your intended direction, you can wait patiently and if things turn sour just add a little more capital and the position is secured, worst case scenario a supposed win turns into a waiting period, nothing more.

On the other-hand, the fast profits, high profits seeking trader is not really looking to make money but to lose it instead, why? Hold on... Let me explain.

You jump into a trade with 15X leverage and the market moves in your intended direction and you almost double up, you reach 50% profits, 80% profits, 90% profits but you never secure the trade, you never, never withdraw, just keep waiting and hoping and salivating over more, that's greed of course.

Nothing more comes and the market starts to move the other way... What was once a major paper win, has turn into anxiety and stress, days without sleep, worry and no way to get out of the trade.

The worst part of all is that the market knows.

The market can never go into your direction anymore, not until your position is liquidated, until all the over-leveraged traders are out, only then can the market turn.

Whenever you choose to close the position, the market stops and goes the other way;
Somehow if you decide to keep it, it keeps on going against you until you are finally liquidated and everything can once again change!

Why?
You ask?

It is the market psychology... The only reason why the market turned is because players got greedy at one point. Once the greediness is out, anxiety is gone, everything is good, the market resumes its original move.

So before you go on too high leverage ask the following question: Why?

Why would I put myself under such extreme risk?

If the answer is related to potential gains, a windfall of profits, big wins... It is time to take a time out, go for walk, watch a movie or find something to read.

If the answer is related to fulfilling a financial need, then once again leave... The only answer that is a valid one is when you have a surefire, 100% win. Since this is not possible, you should consider lowering your leverage to increase your chances of success and reduce risk.

Namaste.