It depends somewhat on the sailing conditions. For maximum leverage you really want to be standing so that your body is in line with the beams of the boat. This means that the dogbone will be touching the side of the boat, possibly slightly lower. That said, for the short round the cans racing that I normally do, I usually have it set some way higher, but not as high as you describe.

When you're sitting on the deck, the only thing holding the dogbone on should be the tension from the bungee. When you drop yourself over the side you should drop at least a few inches before the trapeze takes your weight.

Paul