Is this logical and practical?

Discussion in 'Trading' started by hermit_trader, Oct 24, 2002.

  1. I read an article about survival in the market. The author said you needed to make consistent profits instead of huge profits i.e. you need a conservative approach to trading. He said if you could make 1% a day, you would double your money in 100 trading days i.e. about 20 weeks. If you double your position size when you double you money, your account will multiple 1024 times in 200 weeks (forget the tax).

    In my case, I have only $10K capital, if I select to trade two T-Notes contracts each time and I want to make 1%(=$100) then I need to make about 2 points for each contract (2*2*31.25=$125 then minus commissions). Hopefully, I would have $10M four years later.

    It seems to be very doable. Do you think so? Do you think any flaw in it? Do you think 2 TN contracts are risky for 10K capital?
  2. Doable? No. Risky? Yes.
  3. dottom


    Make 1% a day, make 2% a day, whatever you want, the realities of compound math are real. The difficulty is finding a method that will give you that kind of consistent results with a low risk of ruin. Not to mention you will hit practical limits of liquidity and sanity as your trade size grows.

    A lot of new, romantic traders do the compound equity math and think they could make X millions if an account grows consistently by Y percent. You can actually make much more than that. It's called OPM!

    The dream is REAL, the probability is VERY LOW! Good luck!
  4. tracedef

    tracedef Guest

    You've spoken volumes with a few sentences.......nicely done.
  5. blabla % a day, CONSISTENTLY, thats the key word...
  6. that's the toughest part in trying to compound daily or weekly, or even monthly for that matter. the growth in trade size is just too rapid for the vast (VAST) majority of people to handle it.
  7. Essentially that is the idea behind "start with a penny and double it each day" concept. In a very, very short time you hve a lot of money. The problem is not doubling during the first days, it is doubling during the latter days.

    You probabably have in your possession the money it takes to double a penny for a number of days. But after 30 days, the total is more than 10 million dollars. That means that yesterday you had more than 5 million dollars. Do you have the savvy to double 5 million dollars today?

    The same goes for the T bond idea. Making 1% of a few thousand is a piece of cake. Making 1% of a few hundred thousand is not a piece of cake.

  8. dottom


    The problem here is that at the moment in time that a new trader first contemplates the power of equity compounding through trading, they still have a helluva long way to go before they even learn to become consistently profitable on 100-share lots.

    It's like dreaming that you can run back-to-back-to-back marathons when you can't even:

    - run a mile (Discipline)
    - 5k race (Money Management)
    - 10k race (finding a positive expectancy method)
    - 20k race (Consistency - i.e. winning consistently
    every day, week, or month depending on your style)

    Different skills may be more applicable for different people, but you get my point...