Do you know how to manage your trade leverage to meet a consistent target risk profile? If you don't, better check this out

1. www.tradeslide.com
Lc Badge

2. 2
Why consistent leverage (Lc) is investable (1/2)
• Successfully trading capital with leverage requires 2 skills:
1. Timing : entering the right asset, at the right time, in the right direction,
exiting when maximum profit for the pattern has played out
2. Risk/return Management: leverage can amplify timing returns (positive
AND negative!!) to meet any personal risk appetite
• Timing skill is valuable to investors (aka “investable”): very few traders
find/code tradable patterns faster than all other humans and algorithms in the
market
• However, there is no such thing as leverage “skill”:
• No trader can be 100% certain (do sustained 100% win-ratios exist?) of
the outcome of a trade when opening it - which is when leverage is set
• What, then, justifies changing leverage across positions?
• The best that traders can deliver is leverage that consistently amplifies the
returns from timing skill to suit a declared risk-appetite choice

3. 3
Why consistent leverage (Lc) is investable (2/2)
• Pretending otherwise and changing leverage (i.e. inconsistent leverage)
introduces a random component (i.e. luck!) on top of a strategy’s timing return :
• Badly timed strategies can display random profits through leverage
changes - profits accrue through luck! (more leverage on winning than
on losing trades)
• (The flip-side also applies: inconsistent leverage can make a well-timed
strategy unprofitable! – leading talented traders with bad risk
management to abandon good strategies for the wrong reason!)
• Inconsistent leverage is NOT investable:
• It puts the source of profits into question: is it timing (good!) or just lucky
leverage (bad!)?
• Inconsistent leverage is a warning flag for bad risk management – what
happens to investors when a highly leveraged gamble goes bad?
• Strategies with consistent leverage PROVE risk management skill – are at
least trustworthy and likely investable, if all other TS elements are investable

4. 4
INDEX
1. UNDERSTANDING LC
2. IMPROVING ON LC
3. QUESTIONS?

5. 5
Badges represent progression in colors
• Yellow = Lowest achievement
• Magenta = Highest achievement
This strategy displays 6.8/10 Lc
• Shown by number in progress bar
Progress within magenta is displayed in the
circular progress indicator around the badge
itself
Click on to see a detailed description of
the level you are in
Understanding Lc – Lc Badge
Your Lc level is displayed under Trader -> Challenge
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Check the percentile of the traders
in the community for this badge!

6. 6
TS Leverage – comparable across assets / strategies
TS Leverage means: multiples of (market average) 1:1 EUR/USD volatility
Different assets have different volatility/risk!
• 1 month volatility for various assets:
• EUR/USD: 2.21%
• USD/CAD: 1.66%
• GBP/JPY: 3.31%
• Nominal volatility is a bad proxy for risk
• Composite trades: for positions
involving multiple assets, nominal
leverage is meaningless
• Single asset trades: 1:1 leverage
GBP/JPY trade is 2 times riskier
than 1:1 USD/CAD
Position TS Leverage Comment
1:1 EUR/USD
(long or short)
≈1
The average volatility of the
EUR/USD is the anchor
4:1 EUR/USD 4
4 times as risky as the
anchor!
1:1 GBP/JPY 2.5
Pound/Yen historically 2.5
times as volatile as
EUR/USD
20:1 EUR/USD
(Long) &
30:1 JPY/GBP
(Short)
7
Our algorithms work out
how risky this trade is in
multiples of 1:1 EUR/RISK!
TS Leverage: compares volatility of a trade/strategy with average EUR/USD volatility

7. 7
Understanding Lc – Lc Chart (1/2)
Your Lc Chart is available under Trader -> Challenge
TSLeverage,(multiplesof
1:1EUR:USDrisk)
Green: winning positions
Red: losing positions
All data refer to chosen
period in timeline (21
trading days)
Max / Min TS Leverage in
selected period of 21
trading days

8. 8
Understanding Lc – Lc Chart (2/2)
The strategy’s TS Leverage Target TS Leverage Target and
VaR for Jun 23rd 2013
• TS Leverage Target =
Leverage to be chosen in
all positions on a given day
to keep your Risk stable
(e.g. 80.8% in this specific
case)

9. 9
Lc Example – Consistent leverage!
Most positions in min/max
range!
Short positions
outside target
range
penalize little
The bigger the deviation,
the bigger the penalty
The lower chart tracks total deviation
from target: low & smooth = good!

10. 10
Lc Example – Inconsistent leverage!
Most positions outside
min/max range!
Deviations from target in
long positions penalize
the most!
The lower chart tracks deviation from
target: spikes = bad!

11. 11
Want more examples?
Visit the TS Leaderboard to see Lc for other strategies
By using the filter functionality! Filter by TS Elements!
Sort by TS L.
Consistency
1
2
Review the
strategy!
4
Visit the Trading
Journal!
5
3 Define
timeframe

12. 12
INDEX
1. UNDERSTANDING LC
2. IMPROVING LC
3. QUESTIONS?

13. 13
Improving Lc (1)
TS Leverage Target for a given day: TS Leverage Target = Leverage to be
chosen in all positions on a given day to keep your Risk stable (i.e. same VaR as
the day before, 80,8% in this example).
• All the positions opened on Jun 23rd 2013
should be in the region of the TS Leverage
target for such date (i.e. 24.34) - otherwise
your score will be penalized!
Note: the longer the duration of your trade,
the closer you should keep to the TS
Leverage Target!

14. 14
Improving Lc (2)
If you do not like your current Risk, change your leverage using the following
formula:
The Desired Target Leverage for the example above would be ≈ 9.04
Note: Should you decide to change your risk, make sure you do it progressively – otherwise
your Rs and Lc will be penalized!
Desired Target Leverage = (Target VaR / Current VaR target ) * Leverage Lc
E.g., to reduce your Risk (from VaR of 80.8% to 30%), the formula would read as
follows:
Desired Target Leverage = (30/ 80.8) * 24.34

15. 15
Coming soon: Money Manager!
• Your Lc chart will soon be more
than a diagnostic tool!
• For traders who report their live
trading, Money Manager will
provide, real time:
• Current leverage
• Nominal required to open
new trades on target TS
Leverage
• Nominal required to
modify existing trades
within target TS
Leverage
• Do contact us if you want to be
part of the Beta program for
Money Manager!

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Remember – timing helps, leverage doesn’t!
• Your leverage target is a personal choice, driven by
• Personal risk appetite: how quickly do you want to grow your capital?
• Skill: can your “gut” handle the loss aversion that leverage will trigger?
If in doubt, always trade with less leverage than you can handle!
• Your leverage choices drive how quickly your strategy grows YOUR CAPITAL
• At best, leverage grows your personal capital more quickly
• At worst, it ruins good timing by introducing loss-aversion (see La
Badge), wiping your equity (margin calls), or being fooled by
randomness (lucky/unlucky leverage gambles, as discussed)
• ONCE you deliver consistent leverage, the speed at which your capital grows is
IRRELEVANT to yours investors – they’ll choose for timing skill ONLY -
• If you trade with consistent leverage, investors can adjust their
leverage to a fraction/multiple of yours that suits their risk appetite,
• If your leverage is not consistent… they probably won’t invest!

17. 17
INDEX
1. UNDERSTANDING LC
2. IMPROVING LC
3. QUESTIONS?

18. 18
Questions?
Trading is hard – no wonder there are unanswered questions!
(Why not, together, build a Knowledge Base that answers them all?)
• The Knowledge Base contains TS Mentors’
answers to all your questions!
• Mentors are Traders like you who
enjoy helping out, and are voted
very good at it, AND
• Trading educators hand-picked for
quality and broker independence,
who pitch their materials
• Want to contribute? Great!
• Post an article / Post
• Ask or answer questions
• Rate fellow traders’ contributions

19. 19
Can you do better?
• This article is a “stub” (an unfinished entry that MUST be improved)
• We need your questions & feedback to improve it!
• Feel free to post your questions to the TS Knowledge Base
• Have suggestions?
• theowl@tradeslide.com can’t wait to hear them
• We’d love to credit you for improving our content
• Contributing to the Q&A sections will boost your mentor score if others like what you post
(even questions do!) – helping out will reflect on your community standing, which means
• More traders will visit the URL on your profile
• When they visit, they’ll request your mentoring!
• If they do it enough, we’ll offer invitations to you