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Compounding

Compound Interest - A Trader's Secret WeaponIn this video I give you a perspective that traders often neglect - Compound Interest. Compounding is probably the most important part in terms of becoming a trader that survives in the long run. Social media is filled with traders nowadays, and some of them are pretty good at trading. However, shortsightedness gets to them as they forget about the one thing that ensures longevity in this game. It is way easier dig yourself into drawdown than it is increase your wealth, it is just math. The technique that greatly rewards the disciplined and patient trader is COMPOUNDING. As Albert Einstein said according to some sources although not verified is that "Compound interest is the 8th wonder of the world". - R2F
Education
by Road_2_Funded
Compound Trading Strategy: Definition and UseCompound Trading Strategy: Definition and Use Compounding is a powerful strategy that includes reinvesting returns from trades to achieve exponential growth over time. According to theory, by consistently reinvesting returns, traders can potentially increase their capital base. This article explores the mechanics, benefits, risks, and practical steps to effectively implement a compound trading strategy, providing valuable insights for traders aiming for long-term growth in the financial markets. Understanding Compound Trading Compound trading is a strategy that involves reinvesting returns from trades to increase the volume of future trades, aiming for exponential growth over time. Unlike simple trading, where traders might withdraw returns after each effective trade, compounding leverages these returns to progressively build a larger trading capital. The concept is rooted in the principle of compound interest, where the returns generated are reinvested to generate additional gains. In trading, this means each effective trade adds to the capital base, which then potentially earns more in subsequent trades. This snowball effect can potentially amplify the growth of the account balance. To illustrate, consider a trader starting with $1,000 and achieving a 5% return each month. Instead of withdrawing the $50 profit, the trader reinvests it, increasing the capital to $1,050. The next month, a 5% return on $1,050 yields $52.50, and so on. Over time, the capital grows at an accelerating rate, thanks to the reinvestment of returns. However, the power of compounding also comes with increased risk. As the capital grows, so does the amount at stake in each trade. This requires careful risk management and discipline to avoid significant losses that can also compound. Traders need a solid strategy, consistency, and a clear understanding of market conditions to take full advantage of compound trading. To access real-time charts and develop your own strategy with more than 1,200+ trading tools, head over to FXOpen’s free TickTrader platform. Compound Trading: Calculation To understand the mechanics, let’s delve into the mathematical foundation. The core formula for calculating compound returns is: E = P * (1 + r)^n Where: - E is the ending balance, - P is the initial principal (starting capital), - r is the monthly return rate, - n is the number of intervals compounded over (months) Note that percentages are expressed as decimals. For instance, if a trader starts with $1,000 and achieves a monthly gain of 5%, the formula calculates how the capital grows over time. After one month, the capital would be: E = 1000 * (1 + 0.05)^1 = 1050 After two months: E = 1000 * (1 + 0.05)^2 = 1102.50 This compounding effect accelerates as time progresses. By the end of 12 months, the capital grows to approximately $1,795.86—a 79.586% return compared to a 60% return if returns aren’t reinvested (5% of $1,000 each month). After 24 months, the compounded capital is now worth $3,225.10 vs $2,200. It’s also possible to estimate the power of compounding if a trader knows their win rate and average risk-to-reward ratio. The formula for calculating the long-term effects of compounding with this information is: E = P * ((1 + %win) * (1 − %loss))^(N * WR) Where: - E is the ending balance, - P is the initial capital - %win is the percentage of profit gained per winning trade - %loss is the percentage of loss per losing trade - N is the total number of trades - WR is the total win rate For instance, consider a scenario where the same trader has a win rate of 60%, with a risk-to-reward ratio of 1:2, meaning the trader risks 3% per trade to gain 6%. Using the formula above, we can calculate the total return after 100 trades: E = 1000 * ((1 + 0.06) * (1 - 0.03))^(100 * 0.6) The effect can be substantial, with the trader’s capital potentially growing to $5,304.64 after 100 trades. After 200 trades, the capital may grow to $28,139.21. Benefits and Risks of a Compound Trading Strategy Compounding offers a unique approach to growing trading capital by reinvesting returns. While it holds significant potential, it's crucial to understand both its benefits and risks to make informed decisions. Benefits of Compound Trading - Exponential Growth: Reinvesting returns allows traders to take advantage of compound interest, leading to accelerated capital growth over time. - Enhanced Returns: As the trading capital increases, the absolute gain on each trade becomes larger. - Disciplined Trading: Compounding encourages a long-term perspective and disciplined trading practices, as traders focus on consistent returns rather than short-term gains. - Increased Capital Base: By reinvesting gains, traders continuously increase their capital base, providing a cushion to absorb market volatility and potential losses. Risks of Compound Trading - Increased Risk Exposure: As the capital grows, the amount at risk in each trade also increases, which can lead to significant losses if not managed properly. - Market Volatility: Financial markets are inherently volatile, and sudden market changes can adversely affect compounded investments, leading to substantial capital erosion. - Emotional Pressure: Larger positions can increase emotional pressure on traders, potentially leading to impulsive decisions that deviate from the trading strategy. - Overconfidence: Continuous success can breed overconfidence, causing traders to take undue risks or abandon their disciplined approach, which can result in significant losses. Practical Steps to Start Compound Trading Using compounding in trading requires a blend of strategic planning, discipline, and consistent tracking. Here are the practical steps traders can follow for an effective compounding journey: 1. Setting Clear Goals and Expectations Before getting started, it's crucial to establish clear financial goals and realistic expectations. Traders typically determine what they aim to achieve—whether it's a certain percentage of growth per month or a specific financial milestone. Understanding that compounding is a long-term strategy helps set the right mindset and manage expectations. 2. Creating a Detailed Trading Plan A well-defined trading plan is essential. This plan should outline the trading strategies to be employed, including entry and exit points, risk-to-reward ratios, and criteria for reinvesting returns. Consistency in following the plan is key to leveraging the advantages of compounding. 3. Tracking Profits and Losses Maintaining a detailed record of all trades is vital. Using a spreadsheet to log profits and losses allows traders to monitor their progress and analyse the effects of compounding on their capital. It can be useful to review this weekly and monthly to check how aligned a trader is with their goals and potentially reassess their approach. 4. Establishing Withdrawal Strategies For those trading full-time, it's important to establish how much can feasibly be withdrawn while still allowing the capital to grow. This involves balancing personal financial needs with the goal of compounding returns. Deciding on a fixed percentage or amount to withdraw periodically can help maintain this balance. 5. Maintaining Discipline and Emotional Control Holding on to large amounts of money and coping with potential losses requires significant discipline. Traders must remain calm and stick to their plan, especially during volatile market periods. Emotional decision-making can derail the strategy, so it's crucial to maintain a level-headed approach. 6. Treating Trading Like a Business Effective compound trading requires treating it as a business. This means reinvesting returns back into the trading account to fuel growth, just as a business would reinvest earnings to expand. Viewing trading through this lens encourages a professional and strategic approach. 7. Protecting Compounded Capital During trading slumps or periods of high market volatility, it's essential to protect the compounded capital. This can be achieved by limiting risk exposure, most often by adjusting position sizes. Preserving capital during downturns ensures that there is still a solid base to build on when the market—or the trader's own mindset—stabilises. 8. Using Technology and Tools Leveraging platforms and tools that offer automated tracking, analysis, and risk management features can streamline the process. These tools can help maintain consistency, make data-driven decisions, and stay disciplined. Compounding Trades Compounding trades, also known as pyramiding, involves increasing the size of a position as it becomes profitable. While compounding capital focuses on reinvesting returns to grow the trading account, compounding trades means adding to an existing position during a trade to potentially maximise returns. Pyramiding is typically employed when traders have strong confidence in their position or are engaged in long-term trades. For example, if a trade is performing well and moving in the anticipated direction, traders might add more capital to that position. This approach can significantly amplify returns from a trade since the increased position size benefits from the continuing favourable price movement. However, pyramiding trades carry substantial risks. Adding to a position increases the overall exposure, and if the market turns, losses can be magnified. This risk underscores the importance of only adding to winning trades. Adding to losing trades in an attempt to lower the original entry price can be detrimental. This practice, often called averaging down, significantly increases risk and is generally not recommended. Some strategies incorporate pyramiding as a core component. These strategies usually involve strict criteria for adding to positions, such as specific price levels or confirmation signals to ensure the trade is still valid, and are usually considered advanced. The Bottom Line Compounding offers traders a powerful strategy to grow their capital over time through disciplined reinvestment of returns. By understanding its mechanics, advantages, and risks, traders can harness the potential for significant long-term growth. Ready to start your compounding journey? Open an FXOpen account today and leverage our tools and resources to improve your trading journey. FAQs What Is Compound Trading? Compound trading involves reinvesting returns from trades to grow capital exponentially. By adding the returns back into the account, traders can potentially achieve significant long-term growth as the capital base increases. How to Start Compound Trading? To start compounding, traders set clear financial goals, develop a detailed trading plan, and maintain a record of all trades. Consistency and discipline are also key to reinvesting returns while managing risks effectively. How Do You Compound a Trade? Compounding a trade, or pyramiding, involves increasing the size of a position as it becomes effective. Traders typically add to winning trades to maximise returns and avoid adding to losing trades to manage risk. How to Compound a Trading Account? To compound a trading account, traders reinvest returns rather than withdraw them. Using a strategy that consistently generates positive returns, maintaining detailed records, and adapting your trading plan based on performance and market conditions is key. Effective risk management can help protect and grow your capital over time. This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.
Education
by FXOpen
2
COMPOUND INTEREST: The Secret SauceIn this video I cover the topic of "Compound Interest". I go over the WHAT, WHY, WHO and HOW of it. The Importance of Compound Interest in Trading Compound interest is a fundamental concept in the world of finance and trading, offering a powerful mechanism for growing wealth over time. Unlike simple interest, which is calculated only on the principal amount, compound interest is calculated on the principal and also on the accumulated interest of previous periods. This seemingly small difference can significantly impact long-term investment returns. Amplifying Returns In trading, compound interest can exponentially increase the growth of your account. When profits from trading are reinvested, they start to generate additional earnings. For example, if a trader earns a 10% return on a $1,000 investment, they would have $1,100 after the first period. In the next period, the 10% return is calculated on the new total of $1,100, resulting in $1,210, and so on. Over multiple periods, this effect leads to exponential growth, far outstripping the returns from simple interest. Long-Term Benefits The magic of compound interest becomes particularly evident over longer time horizons. The longer an investment is allowed to compound, the greater the potential growth. For traders, this underscores the importance of patience and a long-term perspective. By consistently reinvesting earnings and allowing them to compound, traders can achieve significant wealth accumulation even if individual trade returns are modest. Mitigating Risk Compound interest also highlights the importance of managing risks and minimizing losses. In trading, avoiding substantial losses is crucial because significant drawdowns can severely disrupt the compounding process. A trader who loses a large portion of their capital will need significantly higher returns to recover, which can be challenging. Therefore, prudent risk management and maintaining steady, positive returns are key to leveraging the power of compound interest. Psychology plays a role as well as losing large amounts of your account can negatively affect your decision making. Conclusion Understanding and leveraging compound interest is essential for traders aiming to maximize their long-term returns. By reinvesting profits and allowing them to compound over time, traders can achieve exponential growth in their investments. Coupled with effective risk management, the power of compound interest can transform modest returns into substantial wealth, making it a cornerstone of successful trading strategies.
Education
by Road_2_Funded
1
Compounding Magic: The Key to Financial SuccessThe concept of compounding power pertains to an investment's ability to generate returns not only on the principal amount but also on the accumulated interest over time. Various investment options leverage the power of compounding, where the earned interest is added to your initial funds. What is Power of Compounding? The essence of compounding lies in the process of "earning interest on interest." In other words, the money you invest initially not only generates returns from the initial principal amount but also accumulates earnings from past compounding periods. This steady growth contributes to the progressive increase of your wealth as you continue to invest, aiding you in reaching your financial objectives. Whether you are embarking on your financial journey or aiming to enhance existing investments, grasping the concept of compounding is essential. Insight into how compounding operates allows you to garner higher returns on your investments and savings, empowering you to strategically plan for significant life goals. How Does Compounding Work? Ever marveled at how a small snowball can transform into a massive snow boulder rolling down a slope? A similar phenomenon unfolds in your financial realm through the magic of compounding. The power of compounding propels the exponential growth of your savings. Here's a breakdown of how compounding operates: Imagine investing $10,000 at an annual return of 8%. In the first year, your investment would accrue $800, reaching a total of $10,800. Rather than withdrawing the $800 profit, you reinvest it. In the second year, your investment grows by 8% of $10,800, totaling $864. This cycle persists, and your money multiplies thanks to the escalating base amount. Over time, compounding has the potential to significantly enhance your investment returns. The key to unlocking the power of compounding is to remain invested for an extended period, allowing the returns to compound. The more time you spend invested, the more profound the compounding effect becomes. Initiating your investments early and consistently contributing to them further magnifies the advantages of compounding. The Advantages of Compounding Across the Years There are multiple benefits of compounding over time. Let’s look at some of them. Higher growth: Reinvesting your earnings entails generating additional gains as both your initial investment and the accrued returns contribute to the potential for accelerated growth. This, in turn, allows your investment to experience significant long-term wealth expansion. Wealth preservation: Combatting the effects of inflation, compounding at elevated rates guarantees the preservation of your wealth's purchasing power, safeguarding your financial well-being over the long term. Comfortable goal achievement: Utilizing the compounding booster allows for a more comfortable attainment of your goal amounts. Alternatively, it enables you to accumulate more than what is strictly necessary, creating a financial cushion. Understanding and capitalizing on the advantages of compounding empower you to optimize your investment strategies, actively steering towards the accomplishment of your financial objectives. What is the Formula for Compounding? The formula for calculating compound interest A = P(1 + r/n)^(nt) A = the future value of the investment, including interest P = the principal amount (initial investment) r = the annual interest rate n = the number of times that interest is compounded per year t = the number of years the money is invested This equation considers both the initial principal amount and the accrued interest over time, taking into consideration the compounding frequency. Examples of compound interest calculations: Assume you deposit $1,00,000 in a bank fixed deposit with an annual interest rate of 8%, compounded annually, for a duration of five years. Applying the compound interest formula: A = $1,00,000(1 + 0.08/12)^(12*5) A = $1,00,000(1.0066667)^(60) A = $1,00,000 * 1.4693 Future value = $1,47,000 approx. Following a five-year period, your investment is expected to reach around $1,47,000. The influence of compounding on investment yields: Compounding exerts a substantial influence on long-term investment returns. Its primary benefit lies in the reinvestment of earned interest or gains, fostering heightened growth. As returns accumulate over time, they generate additional gains, compounding the growth of the investment even further. Initiating investments early and letting them compound over an extended period can magnify their impact. The more extended the time horizon, the greater the opportunity for compounding to exert its influence. As mentioned earlier, compounding produces returns not only on the initial principal amount but also on the accumulated interest. Approaches to Optimize the Impact of Compounding Investing early and regularly: Commencing investments at the earliest opportunity stands as a pivotal strategy. The efficacy of compounding flourishes with time, and initiating investments sooner provides an extended period for growth. Furthermore, the compounding effect is strengthened by making regular contributions, whether monthly or quarterly, consistently adding to the principal amount. Reinvesting dividends and capital gains: When investing in assets like stocks or mutual funds, earnings in the form of dividends and capital gains are frequently accrued. Opting to reinvest these earnings instead of withdrawing them can magnify the compounding effect. The reinvestment of dividends and capital gains has the potential to significantly boost your overall returns. Choosing investments with high growth potential: Opting for investments demonstrating substantial growth potential can markedly enhance the influence of compounding. Allocating funds to assets such as stocks or mutual funds with a proven track record of robust growth may result in significant returns in the long run. Thorough research and analysis are crucial to pinpoint investments that align with individual risk tolerance and financial objectives. The amalgamation of initiating investments at an early stage, consistent contributions, reinvesting earnings, and choosing growth-oriented investments can initiate a compounding snowball effect, resulting in substantial wealth accumulation over the long haul. It's imperative to acknowledge that compounding is a strategy for the long term, and attaining its full benefits requires patience and discipline. The Role of Time in Compounding The role of time is pivotal in the compounding process, especially concerning the growth of investments and the accumulation of wealth. The following key points underscore the importance of time in compounding: The importance of a long-term investment horizon: To harness the potential of compounding, it is crucial to maintain a prolonged investment horizon. The extended duration of your investment enables more time for your assets to grow and compound. By exercising patience and refraining from frequent buying and selling, you provide your investments with the opportunity for sustained long-term growth. The effects of time on compound interest calculations: Compound interest calculations are significantly influenced by time. The duration of the investment period directly correlates with the magnitude of compounding effects. Minor disparities in time can yield substantial differences in investment returns. Time permits the initial investment and accrued interest to generate additional returns, fostering exponential growth over the years. How time can work for or against you in investing: The impact of time on your financial endeavors hinges on the choices and actions you take in your investments. When employed judiciously, time becomes a formidable ally in the journey of wealth creation. Initiating investments early and allowing them sufficient time to compound can optimize their growth potential. Conversely, postponing or procrastinating on investments may curtail the advantages of compounding. Hence, it is prudent not to delay the commencement of your investment journey, as waiting too long could result in missed opportunities for compounding benefits. To sum up, time plays a pivotal role in the compounding process. It is advantageous to embrace a prolonged investment horizon, grasp the impact of time on compounding, and make timely investment decisions. Overcoming Obstacles to Compounding Growing your wealth through compounding is an excellent strategy, yet certain factors can hinder its effectiveness. Here are some essential points on overcoming obstacles to optimize the compounding process: The impact of inflation on investment returns: Inflation has the potential to diminish your investment returns. Presently, the inflation rate in India stands at approximately 6%. Suppose you have an investment yielding a return of 7%. Initially, it might appear as though you're gaining a 7% profit. However, when accounting for the 6% inflation, your actual return dwindles to only 1%. Inflation substantially diminishes a considerable portion of your investment gains. Opting for investments capable of generating returns surpassing the inflation rate is essential to safeguard and augment your wealth in the long run. The risks of high fees and taxes: Elevated fees and taxes have the potential to substantially reduce investment returns, thereby diminishing the potency of compounding. It is crucial to be attentive to the costs linked to investment products, including factors such as the fund expense ratio and stock brokerage. Exploring investment options with tax efficiency, leveraging tax deductions, and contemplating tax-saving investments can aid in mitigating the tax impact on the compounding process. Strategies for minimising these obstacles to maximise compounding: To overcome obstacles to compounding, it is essential to adopt effective strategies, including (I). Right investment selection: To reap the rewards of compounding, it's vital to make prudent choices in your investments, whether it's a mutual fund, stock, or gold. If the investment is poorly selected and wealth is eroded in the process, the potential for compounding diminishes. (II). Diversification: Diversifying investments across various asset classes and sectors can aid in risk management and boost returns in the long run. (III). Regular investing: Systematically investing at regular intervals, irrespective of market conditions, can average the cost of investments and potentially improve returns. (IV). Tax planning: Leveraging tax-efficient investment vehicles and employing tax-harvesting strategies can assist in minimizing the tax burden, thereby enhancing investment returns. Conclusion: Embracing the Potential of Compounding for Success in Long-term Investments To attain success in long-term investing, it is crucial to comprehend and leverage the potential of compounding. The following points can provide assistance. Recognise the benefits of patience and discipline: Successful investing demands a patient and disciplined approach. Acknowledge that the magic of compounding requires time to unfold. Be ready to remain invested for the long term. Set realistic expectations: While compounding has the potential to yield remarkable returns, it is essential to establish realistic expectations. Recognize that investment returns can fluctuate and may not consistently remain high. Be prepared for market ups and downs and the inherent variations in the investment landscape. Stay focused on long-term goals: Keep your focus on long-term objectives and refrain from being influenced by short-term market fluctuations. Stay dedicated to your investment strategy and resist making impulsive decisions driven by momentary events. By acknowledging the advantages of time, patience, and discipline, managing realistic expectations, and maintaining focus on your long-term goals, you can leverage the potential of compounding for success in long-term investing. Keep in mind that compounding is a gradual and steadfast process that aids in building wealth over time, enabling you to attain your financial objectives. Thank you @Money_Dictators
NASDAQ:NDXEducation
by Money_Dictators
8
Simple Investing Strategy, Affordable for all!Hey! Everybody wants to get rich. But not many from us know what it takes. In this article let's discuss Investing income from annual percentage yield (APY) . Key point is the percentage of income can be different from your location, but lets make our calculations from 8.0% APY. Why this strategy is Affordable for ALL? Well, for calculation I've used only $161 of monthly investing. I understand for some person this is nothing, and for another it is a lot. But you can calculate your own affordable investing amount per month and use it. Consistency is the key! Another point why its affordable, its because you don't need to have a lot of money at the beginning. You can start from minimal deposit allowed by service/fund/bank (APY provider) where you allocating your funds. Please, note, this is simple and affordable investing strategy. But still THIS IS NOT 100% SAFE STRATEGY... There are several risks of losing your money after all. Mostly this risks depends on APY provider, so I recommend to change your APY provider over a time, and to secure your funds use multiple providers. Let's see how we get this numbers and first of all it is important to keep consistency during all your investment journey. Remember, this way can make you millionaire and can create a fortune for your kids. To understand how this works, let's see what is Compound Interest: Compound interest is the concept of adding accumulated interest back to the principal sum, so that interest is earned on top of interest from that moment on. The act of declaring interest to be principal is called compounding. Financials institutions vary in terms of their compounding rate frequency - daily, monthly, yearly, etc. Your savings account may vary on this, so you may wish to check with your bank or financial institution to find out which frequency they compound your interest at. I used monthly compounding to calculate final value. With savings accounts, interest can be compounded at either the start or the end of the compounding period (month or year). Compound interest formula Compound interest, or 'interest on interest', is calculated with the compound interest formula. Multiply the principal amount by one plus the annual interest rate to the power of the number of compound periods to get a combined figure for principal and compound interest. This formula is base of all interest calculations. To get easier process of calculation, I have used online Compound Interest Calculator. Best numbers we can get if we start investing early, but it happens we see right information too late, and we ask ourselves "Is it good time to start?" — I can say for sure, YES! Always good idea to start investing in your savings account. Trading is trading, but investing is a little different. You can invest in markets, or in savings accounts. Now let's see "worst case" — you starting your investing journey at 40 years old. How much you can earn on savings account until 60? I have calculated it with calculator, and used only $161 investments/savings per month with APY of 8%. You can see after 20 years of savings this amount of money (pretty much affordable for many people out there) you will get about $95,464 Final Value. Very impressive. Imagine if you can save more from your income each month... For example if you can save $1000 monthly, you will get $592,947 Final value after 20 years on your Savings Account. Middle scenario — investing for 30 years on your savings account. Until 60 you can earn solid $241,547 Final value, investing only $161 per month! Now if you can invest about $500 per month from your income you will get amazing $750,147 Final value. And of course best scenario — start investing on savings account early from 20y.o. This way you can get $565,799 Final value by 60 y.o. And if its possible to save more, let's say $250 monthly, you can get $878,570.30 Final value by 60 y.o. So in order to get rich, you don't need to invest a lot of money. Just make you investments consistent, and improve your financial education. Hope this article can inspire you to create your savings account and plan your future. Best regards, Artem Crypto
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BITFINEX:BTCUSDEducation
by ArShevelev
126
Why You Must Trade and Not Invest. (2 Significant Reasons)Trading is a powerful term in the lexicon of financial conversations, often grouped with investing, indicating a strategy focused on gaining profits in the market. But dig a bit deeper, and you'll find that trading is not only different from investing, but it also offers its own unique set of exciting options for those who want a bit of adrenaline rush coupled with chances of quick returns and the prospect of compounding interest. The Varied Landscapes of Trading and Investing Trading and investing might seem similar, but they travel distinct paths toward wealth accumulation. Investing is a more leisurely stroll, buying and holding assets for a long-term ride, expecting to see capital appreciation and income generation. Trading, however, is more akin to a fast-paced sprint, with frequent buying and selling of financial instruments to bank on short-term price fluctuations. Playing Safe: Risk Management in Trading Trading tends to catch more than a few astute eyes due to its emphasis on risk management. Successful traders know that risk reduction and capital preservation are the cornerstones of their profession. Through stop-loss orders, they create a safety net, defining exit points in advance to sell, if the price trends go against their favor. This key tool helps them guard their investments and tame the untamed volatility of the market. Spreading it Out: Benefits of Diversification Where trading really shines is its ability to offer flexibility in portfolio diversification. Traders can quickly reallocate their capital based on shifting market conditions, constantly adapting, and making the most from potential profit opportunities. *This is the example of the backtesting data that I am using for Algo-Trading As you can see, if there are two different people who wants to trade and invest each, they would face total different result after years because the trading has stoploss to reduce the volatility of fluctuation and account value reduced and able to compound bigger amount of the money. In this example, trade shows +4012% but the invest(holding) shows +53% only. Augmenting Wealth with Compound Interest Commonly referred to as the 'eighth wonder of the world', compound interests serve as a reliable ladder for traders to climb the wealth mountain. The power of compounding accelerates profit accumulation, particularly when compared to traditional investing's reliance on long-term appreciation and reinvestment of dividends. Given appropriate strategies and risk management techniques, the compounding effect can yield truly remarkable returns. Practical Guidelines to Mastering the Trade Master the art of technical analysis: The more you understand chart patterns, indicators, and market trends, the better-equipped you will be to predict price movements, thereby making well-informed trading decisions. Develop a robust trading strategy: The foundation of successful trading is a well-detailed strategy encompassing entry and exit criteria, risk management principles, and diversification guidelines. Practice disciplined risk management: Adhere to set stop-loss orders religiously and never risk more than a predefined percentage of your trading capital on a single trade. Learn from both successes and failures: Trading is a journey of constant learning, and every trade holds a lesson. Examining your trades, spotting patterns, and understanding both winning and losing situations can improve your decision-making skills tremendously. Closing off, trading brings with it its fair share of excitement, quick returns, and the potential for compound interest gains. Armed with knowledge on risk management and diversification, and abiding by well-defined trading strategies, you can confidently venture into the markets. It's key to remember that trading also presents its own risks and needs constant learning and practice. If you're ready to set sail on a thrilling journey, trading might be your desired route. All the best, and here's to happy trading! Follow and Boost for your financial success ! Write your thoughts in the comment section.
by Wealthy_Stats
Future Price of SPY based on fundamentals- worksheet tracker SPX/SPY future price can be calculated by take earnings and compounding out in time using analyst growth projections. You can do this for any stock. Spx in 5 years maybe 1.6x times higher which is approximately a 5-6% annual return. Historically speaking, sp500 yields 7% to 10% so current prices are promising wimpy returns according to analysts. And if the analysts are wrong or something changes, the risk is definitely to the downside because sp500 is already trading at twice the expected growth rate of future expectations. The legendary Investor Peter Lynch prefers to buy stocks when they are trading at 1x the growth rate in PE valuation. So ya, ill pass on the SP500 index wimpy potential returns.
AMEX:SPY
by optionfarmers
12
Compounding Trading EXPLAINED with an exampleListen up. If you want to grow your portfolio exponentially, you’ll need to understand this concept. It’s called ‘compounding’. In short, Compounding is a strategy where you allocate your money with your original and current portfolio in order to reinvest it and grow it into an even larger portfolio. Let’s cut to the chase with an example. Meet Jack and Jill. Jack and Jill both deposit R100,000 into their trading accounts and they decide to follow each other’s trades exactly. At the end of the first year, their portfolio performances were identical. As they enter their second trading year, Jack decides to do one thing different to Jill. He decides to withdraw all his profits so that he can enjoy a lavish holiday. Jill on the other hand, decides to reinvest her profits. This way, in the next year, she’ll be able to grow her account even more. They trade this way for the next 10 years. Let’s compare how their portfolios differ. Simple trading versus Compounding trading in action It is clear that Jill is a lot wealthier than Jack where, she has been able to grow her account from R100,000 up to R2,164,657 in just 10 years. Jack on the other hand is right back to where he started, but with 10 memorable holidays. Which position would you like to be in? Every year, Jack takes on the simple interest trading approach. This is where he continues to earn returns on his original portfolio value only. At the end of each year, he takes out the R36,000 in profits, that he earned, and uses the money to go on a holiday. Even after 10 years, Jack continues to bank a fixed R36,000 each year leaving his trading portfolio back to his starting account of just R100,000. Jill on the other hand, takes the compounding interest trading approach. This is where she continues to re-invest her earnings into her portfolio each year, in order to grow it even larger than the previous year. After 10 years of trading, Jill’s R2 million trading account continues to snowball and compound each year. The science of compounding is an extremely effective wealth building strategy. Do you have a trading or investing question, let me know and I'll be happy to help where I can. Trade well, live free. Timon Financial trader since 2003
JSE:J200Education
by Timonrosso
HOW TO use asymmetric compounding 🧐📈The pair in question and four winning trades allows me to cover a subject I've wanted to touch on. That subject is asymmetric compounding. Asymmetric compounding is a money management strategy that can accelerate the equity curve of an account. But you need the right strategy and data available to back up using asymmetric compounding. Higher the win rate the more asymmetric will work wonders on that equity curve. In simple terms asymmetric compounding is best suited to strategies with higher win rates as you need consecutive wins to make it work. The main reason for using this NZDUSD chart is the four winners in a row make it easier to explain the concept of asymmetric compounding. You traders should know the full ins and outs of your own strategies and if this can be applied. It's not just win rate also RR along with max losing and max winning runs need to be factored in. For this example on the four winning trades I am explaining the concept basing it on risking 2% per trade on the initial trade. As this strategy is a 1:2 risk reward strategy risking 2% sees us gain a profit of 4% on one winning trade. This is where you can then use asymmetric compounding on your next trade. Instead of risking 2% again you now risk the 4% gained from the previous trade on this trade. If the trade goes on to win the 4% risked on that trade has just earned 8% in profit. At this point you go back to risking 2% on the next trade until you have a win and then risk the 4% gain from that winning trade. The chart shows four winning trades at 1:2 RR so lets test the concept in numbers. If we was to risk 2% per trade on a £1000 starting capital account the results are as followed. Trade one 2% risked 4% gained= £1040 capital. Trade two 2% risked 4% gained= £1081.60 capital Trade three 2% risked 4% gained= £1124.86 capital Trade four 2% risked 4% gained= £1169.85 capital Now if we apply asymmetric compounding to the same trade sequence staring back at original 2% risk after two winning trades Trade one 2% risked 4% gained= £1040 capital. Trade two 4% risked 8% gained= £1123.20 capital Trade three 2% risked 4% gained= £1168.13 capital Trade four 4% risked 8% gained= £1261.58 capital Using asymmetric compounding on these four trades see a capital increase of £91.73 more than just risking a flat 2%. Below is an example of using a 1:1 RR strategy risking 1% per trade. If trade is a winner then risk 2% on the next trade which is the profit and the risk from the previous trade. # If that trade wins go back to the intial 1% risk then risk 2% again if that trade wins. This is a great concept to grow small accounts or even pass funded challenges as with the trades shown on the idea chart you would pass most prop firm challenges in two trades using asymmetric compounding. However I can't stress enough you as the trader need to know you own risk appetite for this. You also need to factor in how good your win rates and how often your strategy has seen winning runs that would benefit this concept. One way to found out is to back test and forward test your strategy to see how asymmetric compounding could work for you. Thanks for taking time out your day to read over my idea. Ill see you on the next one 👍 Darren
Education
by pow_removetheguesswork
educational 🧙 ♂️ Buying rumors and selling news to those who still don't know or follow me recently Buying a rumor and selling the news is a trading practice Rumors are an essential component of price action, and news is one that has the opposite effect. In other words, it will give the trader more focus on rumors rather than news. In addition, it will be the entry point when rumors emerge, and the exit point when news emerges. This trading strategy places great emphasis on the timing of each trade as the rumors and news come in other than the technical analysis of the stock or asset. Knowing that news and rumors are about to emerge, traders make important trading decisions after these events. If you don't understand, then see the world upside down 😂😂 An example of simplification The market from the beginning of the week was expected to raise the interest rate, so gold is correcting downwards (this is a rumor buying) While after the news is released, gold is expected to rise, and this is (selling the news).
Education
by Elrouby
educational A detailed explanation of the BUTTERFLY harmonic pattern 🦋 🔹 BUTTERFLY is a reversal pattern consisting of four waves, similar to the Gartley and Bat pattern. They are X-A, A-B, B-C and C-D waves. 🔹 Helps you identify when the current price movement is coming to an end, this means that you can enter the market as the price reverses its direction. 🔹 There is a bullish pattern where you can open a buy position And a bearish pattern where you open a short position. 🔹 BUTTERFLY is a reversal pattern that allows you to enter the market selling at the highest levels and buying from the extreme bottoms. 🔴 buying style: 1️⃣ We have a strong upward movement, which is the beginning of the pattern and is called the (X-A) leg. 2️⃣ The leg (A-B) must be 78% Fibonacci retracement of the leg (X-A) 3️⃣ Then the leg (B-C) and it should be between 38% and 88% Fibonacci retracement of the leg (A-B) 4️⃣ Then the leg (C-D) and it must be between 161% and 261% Fibonacci extension of the leg (B-C) 5️⃣ And the pattern (D) ends, which should be between 127% and 161% Fibonacci extension of the leg (X-A) 6️⃣ When the model is formed and its conditions are completed as we mentioned, the price will rise from point (D) and can benefit from buying from point (D). 🔴Selling style: 1️⃣ We have a strong downward movement, which is the beginning of the pattern and is called the (X-A) leg. 2️⃣ The leg (A-B) should be 78% Fibonacci retracement of the leg (X-A). 3️⃣ Then the leg (B-C) and it should be between 38% and 88% Fibonacci retracement of the leg (A-B). 4️⃣ Then the leg (C-D) and it must be between 161% and 261% Fibonacci extension of the leg (B-C). 5️⃣ And the pattern (D) ends, which should be between 127% and 161%, the Fibonacci extension of the leg (X-A). 6️⃣ When the model is formed and its conditions are completed, as we mentioned, the price will drop from point (D) and the sale can benefit from point (D). below you can see other educational content
Education
by Elrouby
5
educational A detailed explanation of the SHARK harmonic pattern The Shark model was discovered in 2011 by Scott Carney. It is somewhat similar to the crab pattern, and the most important characteristic of this pattern is that it depends on the 88.6 Fibonacci correction ratio This model was created by combining Fibonacci numbers with Elliot Wave Theory. The shark model is characterized by the need to specify the points for determining the model points, which are x, a, b, c, and the beginning of the structure of the model is point 0. In the shark model, point B exceeds point x buy style 1- There is no specific correction for A 2- Point B corrects 113 to 161.8 from XA 3- Point C of model completion at 88.6 to 113 0X and at 161.8 to 224 AB sell style 1- There is no specific correction for A 2- Point B is a correction from 113 to 161.8 from XA 3- Point C of model completion at 88.6 to 113 from 0X and at 161.8 to 224 from AB below you can see one of our trades on shark pattern , and other educational content and some other trades on it
Education
by Elrouby
2
educationalA detailed explanation of the harmonic model SHARK 🦈 The Shark model was discovered in 2011 by Scott Carney It is somewhat similar to the CRAB model 🦀 🔹 The most important characteristic of this model is that it depends on the 88.6 Fibonacci correction ratio This model was created by combining Fibonacci numbers and Elliot Wave theory. The shark model is characterized by the need to specify the points of the model, which are X, A, B, and C The starting structure of the model is point 0. In the shark model, point B exceeds point X 🔴 bullish style 1️⃣ No specific patch for A 2️⃣ Point B corrects 113 to 161.8 from XA 3️⃣ Point C for model completion at 88.6 to 113 0X and at 161.8 to 224 AB 🔴 bearish style 1️⃣ No specific patch for A 2️⃣ Point B is a correction from 113 to 161.8 from XA 3️⃣ Point C for model completion at 88.6 to 113 from 0X and at 161.8 to 224 from AB
Education
by Elrouby
education5-0 . Harmonic Pattern The 5-0 pattern was discovered by Scott Carney 🔹It was published in his book “Harmonic Trading, Volume Two.” It is a unique model that has accurate Fibonacci ratio corrections to validate the model. 🔹Although the 5-0 pattern is considered a reversal pattern, because the 50% retracement level is the most important in the potential reversal area. Correction ratios are slightly different from Bat or Gartley style. 🔹The 5-0 category is in the 5-point harmonic reversal family of models 🔹It is essentially defined by a point B, as is mandatory for all harmonic patterns. The basic premise of the pattern is to determine the reactions after completing the opposite direction 5-0 patterns usually represent the first pullback of a major trend reversal. 🔹In many cases, the AB leg of the structure is the last failed wave of the trend.
Education
by Elrouby
AB = CD pattern education The lightning-fast pattern: The AB = CD pattern is one of the basic patterns and was first discovered by Gartley in a book he published in 1935 entitled Profits in the Stock Market (also described as the lightning fast pattern). In this pattern, the line connecting A and B represents the first price movement, and after the price makes a short correction move from point B and C, the pattern completes the line between C and D, which is the same line connecting AB with equal length. Although the price movement is not always completely equal, the length of the two lines in the AB=CD pattern are very close in length so that through them the reversal points can be identified 📌 AB=CD Pattern Using Fibonacci Ratios: 🔹 This model requires the availability of the basic Fibonacci ratios, which are 61.8%, 78.6%, 127, 161.8% 🔹 Point C must be corrected by 61.8% on the Fibonacci scale of the AB leg, or by 78.6%. 🔹 Point D is achieved at the corrective level 127.2% or 161.8% of BC. However, the following was noted: 🔹 When point C corrects by 61.8%, the extension of the CD leg reaches the 161.8% corrective level. 🔹 When point C corrects by 78.6%, the extension of the CD leg reaches the corrective level 127.2%. ⭕️ There are some cases in which the CD leg only corrects 100% of the Fibonacci scale, then the name of the pattern AB=CD is achieved and in this rare case it may be the classic “double top or double bottom” pattern. The CD leg may equal the AB leg at the time.
TVC:DXYEducation
by Elrouby
Power of Small Consistent EffortsHello Traders, 👋 Today I would love to talk all about the power of putting in small consistent efforts. Furthermore discuss the power of compounding and compound interest. Putting in small consistent effort is ideal for anyone, regardless of experience. Whether you are new to trading, trade forex, trade crypto or even want to find a new hobby 🏑🏓🎺🎸 1.00 The first equation is simply the number 1 raised to the power 365. The power 365 simply means 1 x 1 x 1 x 1 etc... 365 times. Anything multiplied by 1 remains unchanged, so the result is 1. But what happens if we add 1% to that? 1.01 1% bigger than 1 is 1.01. So if we take 1.01 and we raise that to the power 365 — so in other words, we multiply 1.01 x 1.01 x 1.01 x 1.01 etc... 365 times. You will be surprised that it equals 37.8 notice that this is almost 37 times bigger than the answer to the first equation above! 🤯 This is the result you’d get if you “did just 1% more than usual”. The difference in effort is just 1% a day, it’s tiny! If you can work on your trading 1% more than you are currently doing, every day. You will end up with a considerable amount of impact from that work. Whereas if you don’t do that little bit extra every day, you will be making zero progress and contain the same knowledge as you did a year ago, maybe less. Little steps, done consistently time and time again, compound into big, big differences. And not taking those little steps, makes the effect almost disappear. "Compound Interest is the Eighth wonder of the world. He who understands it... Earn it. He who doesn't... Pays it." ~Albert Einstein In simple terms compound interest is earning interest on your interest. For example If you was trading with $1000 and you made on average 10% per month, you would reinvest your earnings each month to make interest on them. This is called compound interest. +++++++++++++ Profit/Interest Month 1 $1100 +$100 Month 2 $1210 +$110 Month 3 $1331 +$121 Month 4 $1464 +$133.1 As you can see each month your profit is increasing. This is because you are making profit on your profit. The earlier you start compound interest the better. This is something millennials should learn in school! I know most people want to jump on the million dollar deal and get rich quick. But if you took a single penny and doubled it everyday, by day 30, you would have $5,368,709.12. However, it's important to note that it's all about the power of doubling. If you asked the same question, but changed the doubling time to just 27 days, you would only have $671,088.64 If you are struggling on your trading journey, do not give up! ****The first step of every successful Trader : FAILURE**** Do not let a little failure scare you away from being consistent. Thanks for taking the time to read my post! 💖 Please check out my other trade ideas! 🐱‍🏍🐱‍🏍🐱‍🏍
Editors' picks
COINBASE:BTCUSDEducation
by Pips-Collector
160
Your OWN EXPECTATIONS are the BIGGEST thing HOLDING YOU BACK! 🤷HOW you can get control of your emotions when trading So if trading is stressful or a rollercoaster, you're not alone. 🎢 BUT, its quite a simple fix really.🤔 You're pushing things a little too hard. Chasing an expectation that in return is causing you stress. 😢 Thing is, its actually pushing you further away from your long term goals too. Long term hopes and dreams, short term thinking, greed and poor decision making. A fear over your running trades constantly watching them on screen. You aren't listening or paying attention to what is going on around you.📱 It can be different though.... Think about it..🤔 If you had a £10,000 account and traded 0.01 on 1 or 2 pairs - would you be stressed? 🧘‍♂️ No. Thought not.😅 The fear would be gone, you wouldn't be bothered - why? Because your risk is F all. The other upside is you would be fine letting your winners run too.💪🏻 So, instead of chasing money - focus on how you want to feel and work back from it.😳 If you have a £500 account - what risk are you truly comfortable with at any one time? What losing run could you experience based on your strategy win rate his could you factor this in too. If you traded 1 pair at 0.01 I am confident you would feel ok; but trading 0.1/0.2 etc on a few pairs and you won't be. So, what am I saying? Strip it back, get comfortable - no one likes to feel stressed and worried over their trades BUT in return you will need to realign your expectations to the long game. 🤝 Think - 2-5 years.🤔 Not how much you can make in a day/week.... you simply won't survive.👍🏻
Education
by pow_removetheguesswork
2
Power of compounding interest, but why do traders still fail ? Hello everyone: Welcome to this quick educational video on Compounding interest in trading. Today I want to break down the benefits of compounding a trading account while keeping good risk management at bay. The reason why compounding interest is so lucrative is due to investing interest on top of interest, and your trading account can grow much faster than traditional investment returns. The important note is that, by having strict risk management rules, proper trading plan, the account can grow over time. But why do many traders fail to do so ? Let's take a deeper look into this: Many new/beginner traders often get involved in trading due to its profitable potential. However, most of them do not learn about risk management, trading psychology on mindset and emotions. They tend to over trade, over leverage their accounts in hope to double it in a short period of time. This almost always leads to traders to blow their accounts, and re-deposit more money to “chase/revenge” their losses, and the cycle continues. The truth is, growing the account by compounding can eventually double a trading account, but only in time and with strict risk management rules. However, the greed, emotion and mindset often become the tread stone for the traders’ success. It's important to understand that having a consistent, sustainable approach in trading can lead to profits and growth over time, but it's not something that is instantaneous, which is what most new/beginner traders often misunderstood. This can be due to social media, and lots of typical trading “guru” out there promising guaranteed results and easy money. Take a step back and think about compounding interest in time and scale. 5-7.5% return per month may not seem much for a small trading account, but it is sustainable and consistent by not over-risking and over-trading. In time when the account is at a larger scale, a few % return with compound effect in a year can generate very sizable return and growth. In today’s trading industry, there are many prop firms out there that allow you to trade their funds, if you can be consistent and sustainable. Understand these firms are not looking for traders to double their larger capital, rather, to have consistent return and proper risk management. When you can prove you can be consistent to compound a small account, then when you actually do trade a larger account, the % return would be the same. Last Note: Build up the right habits from the start. Your job in the beginning of trading is not to make massive returns, rather to focus on risk management, control emotion, and understand trading psychology. Once all these are checked, then you will be miles ahead of other traders who are still struggling to understand the concept. Any questions, comments or feedback welcome to let me know. Thank you Jojo
Editors' picks
BITSTAMP:BTCUSDEducation
by jojofang0901
149