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The most powerful force in the world: compounding

  • #1
  • First Post: Edited Mar 28, 2017 9:43am Jan 29, 2017 11:39am | Edited Mar 28, 2017 9:43am
The great Albert Einstein once said Compound interest is the eighth wonder of the world. He who understands it, earns it he who doesn't pays it. I believe as traders new and pro , anything is possible in forex with hardwork , discipline , persistence and patience..Dont let anyone tell you that you cant do it..You can make history and you can rewrite history if you put your mind to it..Most traders lack vision.Most of us dont have long term goals that is probably why we fail in the long run..If you have a profitable strategy and apply compounding month after month you can make a great deal of fortune.
Do you know that with $1000 trading making 4% daily=$40(80%monthly profit) and compounding it month after month for 12 months you can make a killing of $1,150,000million?The answer is YES you can.HOW HARD COULD THIS BE?I believe I can achieve this one day with hardwork , patience , discipline and proper risk management..

Join me in discussing the most powerful force in the world and in trading(compounding) that can change our lives forever..I believe in the impossible..
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File Type: xls Forex-Plan.xls   17 KB | 2,101 downloads | Uploaded Mar 28, 2017 9:43am
Goal of a successful trader is to make the best trades. Money is secondary
  • #2
  • Jan 29, 2017 11:46am Jan 29, 2017 11:46am
Attached is an EXCEL monthly compounding calculator that can help you set your compounding goals and achieve it.Lets make history and rewrite history together fellow traders..YES WE CAN.
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File Type: xls FOREX Profit Calculator.xls   64 KB | 3,842 downloads
Goal of a successful trader is to make the best trades. Money is secondary
  • #3
  • Jan 29, 2017 12:01pm Jan 29, 2017 12:01pm
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Goal of a successful trader is to make the best trades. Money is secondary
  • #4
  • Feb 1, 2017 12:05pm Feb 1, 2017 12:05pm
Quoting Forexpinbar
Do you know that with $1000 trading making 4% daily=$40(80%monthly profit) and compounding it month after month for 12 months you can make a killing of $1,150,000million?The answer is YES you can.HOW HARD COULD THIS BE?I believe I can achieve this one day with hardwork , patience , discipline and proper risk management.. Join me in discussing the most powerful force in the world and in trading(compounding) that can change our lives forever..I believe in the impossible..

How hard could this be? Totally impossible is the answer.

1% a day is achievable but sooner or later you will hit a black swan event and lose money.

The fact is that compounding your profits is a 100% sure way to lose ALL your money. Make 20% a month and withdraw regularly is realistic and can preserve your capital. The number one rule of trading is capital preservation, not compounding!

A million naive beginners have had this plan and none have ever succeeded...
  • #5
  • Feb 1, 2017 2:57pm Feb 1, 2017 2:57pm
First of all: of course you can AND SHOULD! reinvest (some) of your winnings, that should be common sense under investors/traders who are no intellectually disabled.

Their are still two problems:
1) Your mind will become your greatest enemy. Take a compounding (not trading!) break every now and then and work on your mindset.
2) Liquidity/spread: going for a pip here and there is easy when your position size is relatively small. At some point you will face execution problems (like partical executions, slippage) and your spread will increase. So the thing is: the bigger your average winning the better you can scale. Hunting a single pip with 200 lots is obviously insane but if you can make, lets say, 20 - 30 pips a day without relying on very small micro movements or jump-on news trading you can very well make more in a day than average Joe in a year.
  • #6
  • Feb 1, 2017 4:59pm Feb 1, 2017 4:59pm
Quoting Forexpinbar
The great Albert Einstein once said Compound interest is the eighth wonder of the world. He who understands it, earns it he who doesn't pays it. I believe as traders new and pro , anything is possible in forex with hardwork , discipline , persistence and patience..Dont let anyone tell you that you cant do it..You can make history and you can rewrite history if you put your mind to it..Most traders lack vision.Most of us dont have long term goals that is probably why we fail in the long run..If you have a profitable strategy and apply compounding...
I like your spirit of optimism, but like you rightly said not an easy task. It is very daunting and imperative we keep our head and not to get carried away.
  • #7
  • Feb 1, 2017 5:05pm Feb 1, 2017 5:05pm
Quoting T100
{quote} How hard could this be? Totally impossible is the answer. 1% a day is achievable but sooner or later you will hit a black swan event and lose money. The fact is that compounding your profits is a 100% sure way to lose ALL your money. Make 20% a month and withdraw regularly is realistic and can preserve your capital. The number one rule of trading is capital preservation, not compounding! A million naive beginners have had this plan and none have ever succeeded...
This is the point am trying to raise, it seems rather impossible for such feat to be achieved in the forex market that easily, if that were the case we would be hearing of so many stories abounding.
  • #8
  • Feb 1, 2017 6:25pm Feb 1, 2017 6:25pm
Inserted Video
  • #9
  • Feb 1, 2017 6:39pm Feb 1, 2017 6:39pm
Quoting T100
{quote} How hard could this be? Totally impossible is the answer. 1% a day is achievable but sooner or later you will hit a black swan event and lose money. The fact is that compounding your profits is a 100% sure way to lose ALL your money. Make 20% a month and withdraw regularly is realistic and can preserve your capital. The number one rule of trading is capital preservation, not compounding! A million naive beginners have had this plan and none have ever succeeded...
couldn't agree anymore. spot on
Random_Impatient_Trades
  • #10
  • Feb 1, 2017 7:25pm Feb 1, 2017 7:25pm
Withdraw your profit regularly and reinvest some profit.
Risk comes from not knowing what you're doing.
  • #11
  • Feb 1, 2017 9:19pm Feb 1, 2017 9:19pm
A lot of misinformation in this thread. According to the textbooks:

 Without an edge you will eventually lose, no matter what MM you use (compounding or not)
 With an edge, and risking a safe amount (e.g. 2% equity or less) per trade, you can make compounding work for you
 Agree that preservation of capital is crucial, but it is still perfectly possible to safely preserve capital while compounding (example here)
 Don't confuse compounding with risk. If, for example, you are using fixed frac sizing (i.e. risk a consistent X% equity per trade), then compounding has negligible bearing on risk (I like fixed frac sizing for the reasons I gave here)
 If you have to withdraw money from your account to preserve capital, then your trading system and/or MM is unsafe (prop traders and money managers don't/can't withdraw money!)
  • #12
  • Feb 1, 2017 10:59pm Feb 1, 2017 10:59pm
Quoting Forexpinbar
The great Albert Einstein once said Compound interest is the eighth wonder of the world. He who understands it, earns it he who doesn't pays it. I believe as traders new and pro , anything is possible in forex with hardwork , discipline , persistence and patience..Dont let anyone tell you that you cant do it..You can make history and you can rewrite history if you put your mind to it..Most traders lack vision.Most of us dont have long term goals that is probably why we fail in the long run..If you have a profitable strategy and apply compounding...

True math...yet 4% a day?
10% a month is achievable, and triples your account compounding, in a year...1000 bucks, an edge, and consistency, makes you a million in a few years..
The question is: to have or not to have a consistent edge...consistent is the key word here.
  • #13
  • Feb 2, 2017 2:21pm Feb 2, 2017 2:21pm
Quoting hanover
A lot of misinformation in this thread. According to the textbooks:  Without an edge you will eventually lose, no matter what MM you use (compounding or not)  With an edge, and risking a safe amount (e.g. 2% equity or less) per trade, you can make compounding work for you  Agree that preservation of capital is crucial, but it is still perfectly possible to safely preserve capital while compounding (example here)  Don't confuse compounding with risk....
What do you mean by edge? Trading strategy?
  • #14
  • Feb 3, 2017 1:22am Feb 3, 2017 1:22am
Quoting redcap
What do you mean by edge? Trading strategy?
Edge is a gambling term, meaning a proven mathematical advantage ("positive expectancy"), or the mechanism or strategy that delivers that advantage.

For example, in roulette (with both 0 and 00 on the wheel/layout) the house has a 2/38, or 5.26% advantage over the player (the "house edge").

In trading, probabilities can't be as precisely calculated, but after a large number of trades, you can estimate your edge based on your win/loss statistics.

Edge is sometimes used to mean expectancy: for example, if after a 1,000 trades I'm ahead $800 then my expected gain per trade is $0.80

Alternatively, it can be used to mean "profit factor", or PF, which is calculated as $$ won divided by $$ lost (or sometimes pips won divided by pips lost).
A PF>1 implies that I have a winning system; if PF<1, a losing system.
More information on PF here; and some general ideas on how to interpret performance metrics here (these are just my opinions, of course ).
  • #15
  • Feb 3, 2017 3:53am Feb 3, 2017 3:53am
Quoting hanover
{quote} Edge is a gambling term, meaning a proven mathematical advantage ("positive expectancy"), or the mechanism or strategy that delivers that advantage. For example, in roulette (with both 0 and 00 on the wheel/layout) the house has a 2/38, or 5.26% advantage over the player (the "house edge"). In trading, probabilities can't be as precisely calculated, but after a large number of trades, you can estimate your edge based on your win/loss statistics. Edge is sometimes used to mean expectancy: for example, if after a 1,000 trades I'm ahead $800...
Every post I read from you is usefull Hannover.
So Roulette has an expectancy of 0,0526 right?...
Interesting cause soemtimes I get discoureged when my expectancy drops below 0,10, still in the positive..but thin.
Reminds me that a consistent edge is valuable, specially if I get enough nubmer of runs in a month risking my 1% of capital per trade.
When I hear newbies talking about 4% gain per day it makes me wonder how hard their broker must be laughing.
  • #16
  • Feb 3, 2017 3:44pm Feb 3, 2017 3:44pm
Quoting cuchuflito
So Roulette has an expectancy of 0,0526 right?...
Correct -- in favor of the casino, not the punter, of course.

IMO that's the best type of edge -- it doesn't have to be big, as long as it's guaranteed to be robust, and can be frequently applied. A small edge that can be applied frequently is more 'reliable' than a bigger edge that provides only a limited number of opportunities. For example, I'd prefer to play a coin toss game where
(1) heads wins $1.10 and tails loses $1, but the coin is tossed 100 times per hour,
than a game where
(2) heads wins $2 and tails loses $1, and the coin is tossed 10 times per hour.

Game (1): expectancy over 100 tosses is (50 x 1.10) - (50 x 1) = 5, i.e. an expected win rate of $5 per hour.
Game (2): expectancy over 10 tosses is (5 x 2) - (5 x 1) = 5, i.e. the same expected win rate of $5 per hour.

But the income generated by game (1) will be smooth itself out more quickly, due to the higher frequency of the tosses. Each hour the end result is more likely to be closer to the expected $5. Or to explain it more simply, the more frequently the coin is tossed, the more quickly the 'luck factor' will 'balance itself out', allowing the edge to prevail.

Consistency of income is significant if trading is your primary income source, needed to pay regular monthly bills. I guess this means that aiming to optimize consistency, rather than maximize return, might be preferable in some cases. (For example, one way to improve consistency might be to scale into and out of trades, i.e. multiple entry and exit points). Otherwise you'd need to budget, i.e. put some income aside from profitable months to cover future household bills during months where trading income is insufficient, or even negative.

But I digress......
  • #17
  • Feb 3, 2017 6:49pm Feb 3, 2017 6:49pm
Quoting hanover
A lot of misinformation in this thread. According to the textbooks:  Without an edge you will eventually lose, no matter what MM you use (compounding or not)  With an edge, and risking a safe amount (e.g. 2% equity or less) per trade, you can make compounding work for you  Agree that preservation of capital is crucial, but it is still perfectly possible to safely preserve capital while compounding (example here)  Don't confuse compounding with risk....

'According to textbooks'. I doubt whether textbooks are written by successful traders and surely conventional wisdom about trading must be wrong given that most of those who follow it lose all their money.

Take the "risking a safe amount (e.g. 2% equity or less) per trade". This is crazy and it's origin comes from vendors of useless trading systems that don't want you to lose all your money before the guarantee period runs out. 2% risk or less means you plan to be able to withstand well over 50 losing trades in a row (since your loss each time diminishes with each losing trade)! What kind of system needs that safety measure - certainly not one capable of making a profit.

While your argument about compounding working if you keep the percentage risk the same is true, you are not allowing for the fact that accounts can and do get wiped out. Your assumption is that the trader makes a profit and continues to do so indefinitely. Isn't that the whole problem of trading - that people don't make a continuous profit?

Your last point simply agrees with what I've just said except that in reality, the vast majority of money managers don't make a profit. A glance at PAMM accounts in any broker easily prove that...
  • #18
  • Feb 4, 2017 3:17am Feb 4, 2017 3:17am
Quoting T100
'According to textbooks'. I doubt whether textbooks are written by successful traders and surely conventional wisdom about trading must be wrong given that most of those who follow it lose all their money.....
The textbooks I'm referring to include authors like Jack Schwager (in his Market Wizards books, he interviews some very famous multi-millionaire traders), Dr Van Tharp, Ralph Vince, Dr Ryan Jones, Dr Alex Elder, and many others. I have a fairly extensive library and have done a lot of reading, especially when I first started out trading CFDs around 2001.

Expectancy has a lot to do with entries and exits, and very little to do with MM (how much you risk per trade). A positive expectancy system wins money over time; a negative expectancy system loses money. The MM doesn't determine whether your equity rises or falls, merely the steepness of the slope of your equity curve. I posted some examples of this here. I learned a lot from Ryan Jones' book on MM.

If you start with a tiny account (e.g. less than $1,000), then sure, you'll need to risk more than 2% if you want to make a decent income from the outset. But leverage is a double edged sword: the more you risk, the more you lose each time the market proves you wrong. Talk to retail FX br0kers and you'll find that the reason most newcomers blow their accounts is that they overleverage themselves, by risking too much per trade, relative to the size of their account. If I understand your second and third paragraphs correctly, that's the opposite of what you're saying.

Here and here are two interesting posts by successful traders. Note how one had a run of 34 consecutive losses, and another had 24 losses in a sequence of 26 trades. If they had risked something like 5%, they would have wiped themselves out. I concede that these examples are extreme worst cases, but these two gents had been trading for many years. If you trade using a trend following approach with tight(ish) SLs for a long enough period of time, you'll encounter the occasional lengthy losing streak. It's all about statistical fluctuation, and a trader who's trading a serious size account needs a risk model that protects him against (estimated) worst possible scenarios.

You also need to consider that the deeper you draw down, the greater the return needed on the reduced balance to recover to back to breakeven. For example, if you start with $10,000 and lose 20%, you now need to make 25% return on the remaining $8,000 just to get back to the starting $10,000.

I've been fortunate enough to talk, and/or work with, an ex-prop trader (here is one of his videos) and a couple of money managers. None of these gents risks more than 2% per trade. That's because drawdowns of (say) 10%-15% represent losses of hundreds of thousands, or even millions, of firm/client money. One of the managers trades a small part of my investment portfolio, and he risks no more than 1%. He's been trading for more than 15 years, and has had 26 consecutive profitable months (more info here) since I opened the account. I've also been a student of a well known trader for a couple of years now; at one point he was head FX trader for an international company with more than $250 million under management. He risks something like 1% equity per 100 pips.
  • #19
  • Feb 4, 2017 3:41am Feb 4, 2017 3:41am
The fact is that big time money managers make their money from commissions trading other people's money - they don't really care whether they win or lose the trade because they get their money either way. I'm talking about the commission we get charged by a broker for every trade (not a percentage of any actual profits). So-called 'successful traders' and trading institutions are usually making money off the spread and/or commissions on other people's money and are simply successful salesmen making telephone calls to solicit more investments.

Your example of making 98% in 26 months with no losing month is only any good if you have a huge amount on deposit. Even with a massive $50,000 that represents an income of less than $1,900 a month - hardly enough to live on or make a serious difference to the life of anyone who has $50,000 to spare.

This is where the argument of not risking more than 2% complety falls down - you can't make a living income unless you have hundreds of thousands if not millions.

There's no point in trading like this (except for fun) for the average trader as he won't make a decent income. If your system has to survive 34 losing trades in a row then your capital needs to be so big you are already wealthy enough not to need to trade your own money.

There are plenty of private successful traders with a few tens of thousands who make 10% plus a month. I personally make a very comfortable full time living from trading and my capital is under $20k but I certainly don't follow textbook rules and neither do any of the other winning traders that I know (admittedly, not many). In the early days, i did compound and totally blew a $175k account. Now, I withdraw every week...
  • #20
  • Feb 4, 2017 10:20am Feb 4, 2017 10:20am
This is the sad reality of retail trading. realistically speaking making a living is impossible with less than 50-100k IMO. We have to be very aggressive at first and THEN after a couple years of thinking about taking this business more seriously.
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