Ventures of an ex indie game developer

To leverage or not to leverage

After my utter rekd'age I've gotten some better handle of leverage and market slippage, which can easily be summarized:
Use leverage, but with small amounts. Subdivide a huge chunk of backtesting data into time frames. Backtest each time frame for stability (Sharpe ratio).
I had assumed that stability was mostly relevant for the overall data, but my just optimized parameters show me that it is infinitely better (or say +130% annually) to use stability all the time!


My intuition told me that the blue one would be better (which profits off of the January '18 and November '18 down trends to a higher degree). And well, following the trend is always recommended by oldtimers (who really should know). My intuition may or may not have been right for non-leveraged trade, but when using (cross margin) leverage on BitMEX, you definitely want stability. And when you think about why, it becomes fairly obvious: stability means you can place higher sums in your orders (while still keeping your risk down). Trend following is also only stable as long as the trend continues, and no indicator or investor in the world knows when it starts or ends. Therefore we swing/scalp.

I now feel done with this project, I'll let it sit for a couple of months and see what comes of it. I expect to get 5-10% (which is of little comfort as I just lost 75% in two exceptionally bad mistakes). But if it looks promising, I'll raise my order sizes by 50%, and due to leverage there will be BitMEX blood. If everything goes as planned I'll rewrite the post-mortem and perhaps even make a youtube video about it.

About the author

Mitt foto
Gothenburg, Sweden