1. The Plan Trading is a business if you trade for a living and it needs to be treated that way. Since every business needs a Business Plan so does Trading. Random trading, catching good or bad ones is no way to become consistent and therefor leads to loss, sooner rather than later. This first part is about having a strong, straight forward plan and keeping a journal to be aware of your trading progress. I tend to keep both on one sheet so I can see where I am according to plan. The purpose of the plan is to set a goal and do what needs to be done to reach it. However, keep it real and rational, one step at the time. Once the goal you set has been reached, make a new plan and new goal, every time pushing you to achieve more. I’ll give an example of a plan I’ve used. The starting balance was $10,000.00 but you can use whatever you want, the percentage is important. You’ll see that making 100% on your balance in a month time is very possible and more important – it is realistic and achievable. Certainly, your plan needs to meet your risk appetite. A very simple Excel sheet will do the job with all relevant columns in the header. You can add more columns with more data but this is sufficient for me.
How I write this plan You can set goals in two ways: 1. Based on percentage compound 2. Based on fixed percentage of balance You can see the difference. By compounding the percentage stays the same but the base on which the percentage is calculated increases. This example is over the course of 1 month (4weeks) 5 trading days in a week. Day trading, all positions closed by the end of the day. This a 5% daily goal example. Making 5% a day should be no problem for any trader that’s $500 on a $10,000.00 balance. Even without compounding (making each and every day 5% of starting balance) you’ll double the capital in 1 month. This is in theory and not real and that’s is exactly why I use the compound model. In terms of trading, the only thing that is changing is the position size. I’ll illustrate what I mean on DAX futures, my favorite one. Moves fast, has good daily ATR which allows for multiple entries. BTW, I know a few traders trading ONLY Dax futures and nothing else. You’ll see why.
Yeah, but every time I make 100% the government comes along and takes almost half of it and it messes up my compounding. Now I have to make over 10% a day just to meet my trading plan goals. Doable, but I may need to trade something other than DAX, I'll be too big for any one contract soon at this accelerated pace.
DAX, nice spread of 1 point, sometimes drops to 0, occasionally jumps to 2 but average 1. With a $10k account and leverage 500:1 a 5lot position is very tradable. In terms of margin $2000 per lot with a Point value of $10/lot. To reach the 5% daily target with a 5lot position 11point trade is required since you have to include the commission, so you end up with 10 point profit. This is the simple part, the calculation where, with how much money, how much points to achieve the daily goal. If you take a good look at the DAX chart, there are at least 3 – 4 opportunities each and every day for 11 points, meaning, you can make not 10, but 20, 30, 40 points. I will not get into details about my setups at this stage but will show you what I mean by making multiple 11 point trades on DAX M5 chart. This was today, from 8h Franfurt open through 9h London open till 10h. 3 trades making 3 x 10 points. Which means $1500 in less than 2 hours equaling not 5% but 15% on balance.
Don't know where're you located but seems to me in the US. Being in Europe has some benefits regarding taxation or perhaps going offshore could be an option. I took DAX just as an example, this applies to any instrument, giving it moves enough on a daily basis to be able to catch enough points (pips). Hence, you can calculate how much you need based on taxation you have. It may be 15 points, so you go for 15
You can compound all you want over X-period of time. It is just simple math, anyone can do that. Unfortunately you're not taking into account losses and costs, and are assuming that you are going to compound that same percentage of profit every trading day. Try it for real and come back to us with your results, all trades included. Not this perfect-paper scenario. Oh yeah, and let us know how you FELT going through all of this when you do it live.