How to Understand Leverage and Not Blow Up
Master safe leverage principles to amplify returns without destroying your account.
Golden Rules of Leverage
Rule #1: Position Size
Risk ≤1-2% of account equity per trade
Rule #2: Plan Worst Case
Account for gap risk and maximum loss scenarios
Rule #3: Avoid Correlation
Don't stack multiple correlated leveraged bets
Rule #4: Stress Test
What if volatility doubles? What if gaps occur?
The Recovery Math Problem
A 20% drawdown requires a 25% gain to recover. A 50% drawdown needs 100% gain. Keep drawdowns small with proper position sizing!