Leverage = a double-edged sword
Higher leverage = higher risk. A small move against you can wipe out your account.
Less leverage = less risk. You have more room to tolerate price fluctuations.
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How to choose the right crane?
1. According to the risk level you accept:
Consider how much % of your capital you are willing to lose if you hit your stop loss.
2. According to the stop loss location:
The further away your stop loss is, the smaller leverage you need.
The tighter your stop, the higher leverage you can afford (but the risk increases).
3. Based on your market analysis:
If the market is very volatile, reduce leverage so you don't get liquidated due to random movement.
4. The golden rule for professionals:
Don't use leverage higher than 3x to 5x for regular trading (especially in crypto). Some use lower leverage, such as 2x, or no leverage at all.
5. Calculate it mathematically:
For example, if you use 10x leverage, a 10% move against you = a complete liquidation.
If you use 5x leverage, a 20% move against you = a complete liquidation.
The lower the leverage, the greater the margin of safety.
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Practical example:
If your capital is $1000:
You opened a trade with 10x leverage = your trade is worth $10,000.
If the price goes down just 10% against you, you lose your entire capital.
But if you use a 3x lever:
Same 10% drop, you lose about 30% of your capital, and you are not liquidated.
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In short:
The smaller the lever = greater protection from liquidation.
Set your stop loss carefully before entering.
Do not risk more than 1%-3% of your capital on each trade.
