InDecision Academy · indecision.io/cheatsheets
Leverage Handbook — Stop-Loss Formulas at Scale
Leverage Handbook
Stop-Loss Formulas at Scale — Risk Per Trade at 5x, 10x, 20x. Amplify wins. Don't amplify losses. Master liquidation mechanics and conviction-scaled leverage.
The Leverage Truth
Leverage amplifies BOTH wins AND losses equally. Most traders blow up because they don't scale their stops down proportional to leverage. At 5x leverage, a 2% move is 10% to your account. At 10x, it's 20%. You must tighten stops, not keep them loose.
The difference between 5x leverage that prints money and 5x leverage that wipes you out is discipline on 3 things: (1) stop placement, (2) position size, (3) portfolio heat cap. Master these three, and leverage is a tool. Ignore them, and leverage is a gun with no safety.
Five Leverage Tiers
Each tier has different entry spreads, stop-loss distances, and portfolio heat caps. Higher leverage = tighter stops required.
Cash / Spot
Entry Spread
±3%
Stop Loss
2–3%
Portfolio Heat
5–6%
Liquidation
N/A
Context: No leverage risk. Capital preserved by position size alone. Best for learning.
Example: Entry $100, stop $97–$98, target $200–$206
Margin / Conservative
Entry Spread
±2%
Stop Loss
1.5–2%
Portfolio Heat
4–5%
Liquidation
50% below entry
Context: Moderate leverage. Stop just above breakeven after fees. Good for swing trades.
Example: Entry $100, stop $98–$98.50, target $200
Prudent (Recommended)
Entry Spread
±1.5%
Stop Loss
1%
Portfolio Heat
2–3%
Liquidation
20% below entry
Context: Sweet spot. Moves are amplified 5×. Tight stops mandatory. Conviction-scale here.
Example: Entry $100, stop $99, target $200–$225
Aggressive (Expert Only)
Entry Spread
±1%
Stop Loss
0.5%
Portfolio Heat
1–2%
Liquidation
10% below entry
Context: High conviction only. Liquidation 10% away. One big move = wipeout. Stop discipline = survival.
Example: Entry $100, stop $99.50, target $300–$500
Extreme (Rare Catalysts)
Entry Spread
±0.5%
Stop Loss
0.25%
Portfolio Heat
0.5–1%
Liquidation
5% below entry
Context: Only for binary/high-conviction setups. Liquidation 5% away. Millisecond moves hurt. Not for beginners.
Example: Entry $100, stop $99.75, target $500–$1,000
Risk Per Trade Formula (with Leverage)
The critical rule: NEVER risk more than 1% of your account per trade, even if leveraged. Leverage scales notional, not risk tolerance.
1x Leverage (Baseline)
Risk$ = Account × Risk% / (Entry − Stop)
Walkthrough
Account: $10,000, Risk: 1%, Entry: $100, Stop: $98 → Risk = $100 / 2 = $100 per trade
Key Rule
Standard position sizing. Risk is absolute, not relative to leverage.
5x Leverage (Recommended)
Risk$ = (Account × 5) × 0.5% / (Entry − Stop)
Walkthrough
Account: $10,000, Effective notional: $50,000, Risk: 0.5%, Entry: $100, Stop: $99 → Risk = $250 per trade
Key Rule
Leverage multiplies notional, but risk% stays disciplined. Never risk 0.5% × 5 = 2.5% of account.
10x Leverage (Aggressive)
Risk$ = (Account × 10) × 0.25% / (Entry − Stop)
Walkthrough
Account: $10,000, Effective notional: $100,000, Risk: 0.25%, Entry: $100, Stop: $99.50 → Risk = $250 per trade
Key Rule
Liquidation 10% below entry. Stop at 0.5% creates 2× safety margin. Tight stops non-negotiable.
20x Leverage (Extreme)
Risk$ = (Account × 20) × 0.1% / (Entry − Stop)
Walkthrough
Account: $10,000, Effective notional: $200,000, Risk: 0.1%, Entry: $100, Stop: $99.75 → Risk = $200 per trade
Key Rule
Liquidation 5% below entry. 0.25% stop = 20× safety margin. Only for perfect setups.
Quick Math Example
Account: $10k | Leverage: 5x (notional $50k) | Risk: 0.5% of account = $50 | Entry: $100 | Stop: $99 (1% below) | Position size: $50 / $1 = $50 contract value. At 5x, this equals 1 full contract on $50k notional.
Liquidation Distance Rules
Liquidation price is where your position gets force-closed. Your stop-loss MUST be above liquidation distance. The rule: stop must be at least 50% of liquidation distance, ideally much higher.
5x Leverage
Recommended Stop
1%
Safety Margin
20×
Context
At 5x, margin call when down 20%. Stop at 1% creates massive buffer. Comfortable.
10x Leverage
Recommended Stop
0.5%
Safety Margin
20×
Context
Liquidation 10% away. 0.5% stop = 20× safer than liquidation. Any closer = foolish.
20x Leverage
Recommended Stop
0.25%
Safety Margin
20×
Context
Only 5% until wipeout. 0.25% stop is absolute minimum. One big wick = forced exit.
The Golden Rule
Never let your stop-loss be closer than 50% of your liquidation distance. Better: aim for 10–20× safety margin. Example: 10x leverage, 10% liquidation distance → stop at 0.5% = 20× margin. Comfortable.
Conviction-Scaled Leverage (InDecision Method)
Higher-conviction setups earn the right to use more leverage. Score 10/10 and you can push to 10x. Score 4/10 and you're limited to spot (1x) or skipped entirely.
Perfect Setup
Leverage
10x allowed
Risk Per Trade
1% of account
Example: All 6 factors aligned, HTF + LTF confluence, clean macro backdrop
High Conviction
Leverage
5x allowed
Risk Per Trade
0.75% of account
Example: 5+ factors strong, clear pattern, good timing
Medium Conviction
Leverage
2x allowed
Risk Per Trade
0.5% of account
Example: Mixed signals, decent pattern, timing okay
Low Conviction
Leverage
1x (spot) only
Risk Per Trade
0.25% of account
Example: Weak signals, choppy setup, bad timing
Skip
Leverage
NEVER trade
Risk Per Trade
$0
Example: Contradictory signals, terrible timing, macro headwind
Why This Works
You're scaling position size (and leverage) to signal quality, not to revenge trade. High-conviction setups have higher win rates and better R:R, so they deserve more notional. Low-conviction setups get tight leashes. Over time, this maximizes expected value.
Catastrophic Loss Prevention (Hard Limits)
These are circuit breakers. Hit them, and you stop trading for the day. They exist to prevent margin calls and account ruin.
Portfolio Heat Cap
Limit: 5% max
Definition
Sum of all open position risks must not exceed 5% of account.
Trigger
If 2 positions at 1.5% + 1.5% = 3%, OK. Add a 3rd at 1.5% = 4.5%, GOOD. 4th at 1.5% = 6% = CLOSE WEAKEST.
Position Heat Cap
Limit: 2% max per trade
Definition
Single position risk never exceeds 2% of account, even at 10x+ leverage.
Trigger
10x leverage, $10k account: notional $100k. Never risk more than $200 (2% of account). Tight stop required.
Liquidation Cascade Alert
Limit: >3 positions at 10x+
Definition
If more than 3 positions simultaneously at 10x leverage or higher, close the weakest position immediately.
Trigger
4 concurrent 10x trades = cascade risk. Market panic = all liquidate together. Exit weakest before it turns into 5.
Daily Loss Limit
Limit: Down 3% = STOP
Definition
If down 3% on the day, close all positions and walk away. Reset tomorrow with fresh capital.
Trigger
Hit 3 small losses in a row? Quit for the day. Burnout trading = -5% + more. Quit = -3% + fresh mindset tomorrow.
Margin Call Buffer
Limit: Don't exceed 10x
Definition
Never run 20x+ leverage unless you've been profitable >30% that week and account is growing.
Trigger
Went +5% this week, now want 20x? Acceptable. Flat this week? Stay at 5x–10x max. Margin call = instant ruin.
Cascade Liquidation — What Actually Happens
Rule: Never hold more than 2 positions at 10x+ simultaneously.
Position Correlation Rule
If 2 trades are >0.8 correlated (e.g., both BTC perps or BTC + ETH), treat them as 1 position for leverage purposes.
Example: 10x BTC + 5x ETH = 15x correlated exposure. Your portfolio heat calculation should treat this as a single 15x position, not two separate ones.
Phemex Perpetuals — Exchange-Specific Rules
These rules apply to Phemex USDT perps. Similar rules apply to Binance, OKX, dYdX, but specifics differ. Always check your exchange.
Instrument
USDT perpetuals only. Use for high-conviction trades on major pairs (BTC, ETH, SOL).
Entry/Exit Fees
Taker: 0.05% each side. So 2:1 R:R becomes 1.9:1 after fees. Factor into targets.
Example
Risk $100, target should be $195–$200, not $200.
Funding Rate
Check before entry. If 8h rate is +0.1%, you're paying $16 per $20k position per cycle.
Example
High positive funding? Good for shorts. Negative? Avoid longs.
Insurance Fund Depth
If insurance fund <$1M, avoid max leverage. Exchange can't absorb cascade liquidations.
How to Check
Check /futures/metrics endpoint. If <$1M, cap yourself at 5x max.
Liquidation Engine
Phemex's auto-liquidation is fast (~1–2s). No time for manual bailout. Stops must be above liquidation price.
Safety Note
Stop price MUST be 0.5% above liquidation distance minimum.
Before 10x Leverage — Complete Checklist
Print this. Paste it on your monitor. Use it every single time before entering at 10x or higher.
Setup Quality
- ☐InDecision score ≥6/10? (else skip)
- ☐Pattern clean on 4h+? (else lower leverage)
- ☐Macro backdrop clear? (no earnings/events in 48h?)
- ☐HTF + LTF aligned? (else reduce size)
Risk Mechanics
- ☐Stop loss defined BEFORE entry?
- ☐Risk % matches conviction (10/10 = 1%, 5/10 = 0.25%)
- ☐Position size calculated? (Risk$ / (Entry − Stop))
- ☐Portfolio heat <5%? (sum all open positions)
Leverage Validation
- ☐Liquidation distance >10× my stop? (safety margin)
- ☐Account size supports this leverage? (no margin call risk)
- ☐Already have 10x+ positions? (close one first)
- ☐Daily loss limit not hit? (if down 3%, stop trading)
Execution
- ☐Profit target set at 2:1+ R:R (after fees)?
- ☐Stop-loss order placed on exchange? (NOT mental)
- ☐Insurance fund >$1M? (Phemex safety check)
- ☐Funding rate reasonable? (check 8h rate)
Non-Negotiable Rule
If you cannot honestly tick ALL boxes in the "Risk Mechanics" section, do not enter. Period. Skipping any step = reckless. One reckless trade at 10x = liquidation. One liquidation = no account. No account = game over.
Quick Summary Table
| Leverage | Stop Loss | Max Risk per Trade | Liquidation Distance | When to Use |
|---|---|---|---|---|
| 1x | 2–3% | 1% | N/A | Learning, low conviction |
| 2x | 1.5–2% | 0.75% | 50% | Conservative swing |
| 5x | 1% | 0.5% | 20% | Medium conviction (recommended) |
| 10x | 0.5% | 0.25% | 10% | High conviction only (expert) |
| 20x | 0.25% | 0.1% | 5% | Perfect setups only (rare) |
The Leverage Paradox
The traders who use the most leverage lose the fastest. The traders who use leverage most EFFECTIVELY use it the least.
High-conviction setups at 5x beat medium-conviction setups at 20x over time. Why? Because high conviction setups have better win rates, so you can hit your 2–3:1 R:R targets cleanly. At 20x, you're praying every tick doesn't liquidate you. Fear overrides logic. You panic-exit winners, hold losers too long. Game over.
Respect leverage. Use it only when conviction justifies it. Track portfolio heat religiously. Tighten stops proportional to leverage. Hit your daily loss limits. And remember: the goal isn't to make 100% this month. It's to be alive and trading next year, and next decade.