The Building Of Leveraged Positions With Long-Term Time Horizons
Dangerously Exciting
Something I am looking to accomplish in the next cycle is to maximize and leverage that which usually destroys. It’s not only important to avoid damage, but also to harness destructive forces and leverage them for profitable outcomes. For example, I began exiting the market at $65K in 2021 but only began shorting the market at approximately $33K.
In hindsight, I should have begun building short positions once the double top formation was in. However, for several reasons, I chose not to. This time around, I am aiming to build a series of short positions over time, ultimately enabling me to benefit as much as possible from the next bearish season.
In a similar scenario, I have now begun building leveraged long positions. These are all altcoin positions at this stage, and I have chosen to include Solana, Cardano, and Polygon. These are all well-established projects and are likely to perform relatively well over the next two years. I may add others as time progresses.
I have purposefully held back on initiating this strategy, as the most important aspect is to ensure that a relatively convincing bottom is in. Even if it is retested at a later stage, the dynamics of time and cyclical maturation are now in favor of such a move. Some are perhaps thinking that this is an extremely risky move, given the current market.
However, risk is subjective to risk management. For example, a trader using good risk management is safer in a risky trade than a careless trader in a relatively safe trade. The majority of traders and investors practice little to no risk management, and it is this very fact that blinds them from ever being able to construct and practice complex trading strategies.
Leverage Changes The Rules
Choosing to trade futures or other leveraged products such as CFDs, opens up an entirely new playbook and set of rules. If you go about trading with leverage in a similar way to trading spot, you are most likely going to get REKT… and fast! Essentially, it is impossible to trade with leverage without a certain level and incorporation of risk management.
The dynamics of leverage trading are simply not compatible with trading strategies that do not incorporate some aspect of risk management. This becomes increasingly obvious as leverage is increased. Without risk management, induced volatility simply liquidates inexperienced traders. Risk management is much like security systems.
There are varying degrees of security and protection. Some security systems are almost ineffective, and then some are rock solid. Just like with security systems, there are weaknesses, and even the most robust risk management practices are not without vulnerabilities. That being said, there is always room for modification.
Provided, greed is kept in check, there are ways to lower the risk profile of even already risk-averse strategies. It’s important to always bear this in mind. It’s kind of like a volume button for risk. Even though a certain song is playing, it can be toned down. Similarly, safer strategies can become even safer, provided you sacrifice a little enjoyment.
The enjoyment of trading is inherently connected to profitability. Choosing to sacrifice a little, rather than squeezing every last drop of profitability out of a trade can help a lot in reducing risk. The strategy I use to build leveraged positions works in conjunction with the market and ultimately plays out in steps. I find this to be crucial when trading with leverage.
Stop-losses are used to lock in profitable “compartments” of the larger trade, and also to ensure that heavy corrections are unable to compromise the overall integrity of the trade. This is paramount, and is in many ways, the foundational undergirding of this particular strategy. Different strategies are better suited to particular market conditions, assets, and trading instruments.
Final Thoughts
Building positions over time can be an extremely profitable strategy, especially when you add leverage to the scenario. However, as mentioned, doing so without risk management is a bit of a death wish. Utilizing this strategy at the base of a bull market makes it even more powerful and effective. Ultimately, profits are compounded over the years.
The aspect of leverage serves to provide the profitability of micro-caps without incorporating much risk. If leverage was not incorporated into this strategy, I would likely consider different altcoins. Coins with greater upside potential. However, I am operating on 10X leverage, which changes the game considerably.
Essentially, a 10X return becomes a 100X return, and so on. This offers tremendous potential, while simultaneously taking advantage of the stability of more established projects. All the best with your own tailor-made strategies. See you next time!
Disclaimer
First of all, I am not a financial advisor. All information provided on this website is strictly my own opinion and not financial advice. I do make use of affiliate links. Purchasing or interacting with any third-party company could result in me receiving a commission. In some instances, utilizing an affiliate link can also result in a bonus or discount.
This article was first published on Sapphire Crypto.
