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# Question for some math gurus

Discussion in 'Strategy Development' started by dafishman, May 6, 2009.

1. ### dafishman

I'm not the best when it comes to math. Here's my question:

If I use lets say 10k per stock, per trade and I make 1% a day profit off of each trade.

Can you tell me how much you would have at the end of a month with just 1 trade a day?

Or do you need to know the stocks price? Lets say its 30 dollars.

Can someone explain how I can figure it out if I have 1 trade per day or 5 trades per day or 3? I just want to be able to see if 1% is a doable number after 1 month, 3 months, 6 months.

Hopefully, I am explaining it correctly.

2. ### Angrycat

The best advice I can give you is if you have this much trouble with basic arithmetic, you shouldn't be trading.

if each trade is 10K and you expect 1% profit daily, then you will make \$100 per day per trade. Multiply that by the number of expected trades.

But if you have that much trouble with arithmetic, why do you assume you are accurately assessing probability from which you derive your expected return?

3. ### swiftmike99

What if you are compounding? Still this is simple math specialy if you have excel don't even have to know the compounding formula.

I agree with the above poster if you are having problems with basic math then maybe trading isn't for you.

4. ### Corey

Assume a month has 30 days.

If you do not reinvest gains: 10,000 * 0.01 * 30 = 13000
If you do reinvest gains (10,000)*(1+0.01)^30 = 13478.49

5. ### EricP

Compounding returns is pretty simple. Assuming the full 10k is traded each day... If you have a 1% return, the second day, you will have:

10,000 x 1.01 = \$10,100

If you were compounding at 3.5% interest, for example, it would be

10,000 x 1.035 = \$10,350

For three days at 1%, it would be
10,000 x 1.01 x 1.01 x 1.01 = 10,406,04

An easier way would be to take 1.01 to the 3rd power, or
10,000 x 1.01^3 = 10,406.04

So, if you want to compound 1% return over 20 trades (or days), it would be
10,000 x 1.01^20 = 12201.90

In general, the formula would be
(initial value) x (1 + interest rate / 100) ^ (number of compounding periods)

So, to compound \$2500 at 2% per day, over one trading year (250 days), you will have
2500 x 1.02^250 = 353,169.30

6. ### dafishman

thank you everyonel. It really cleared things up for me.

7. ### eagle

I suggest you to concentrate on what you're doing (trading strategy) and screenshot your account balance at the beginning of each month and do so for 6 months to see if you can have something consistent.

8. ### navigateqd

I believe math has nothing to do with profitable trading, otherwise, every scientist can be a top trader.

You just need some time to get to know the basic conception.

Try www.wikipedia.org

9. ### Angrycat

compounding is the least of his problems if he's having trouble calculating 1% of 10K. I'd be worried that what he's compounding is losses.

Not trying to put this guy down, but losing money is much easier and more painful than making it and I just hope he really thinks about what he's doing.

10. ### Angrycat

True. In fact, a lot of quants make very poor traders. But this guy isn't having problems with abstract quantitative concepts in mathematics.

His problem is arithmetic and I've never met a trader who is successful (beyond short term luck) who isn't good at basic computation. Although, I've met plenty of quants who have a firm grasp on quantum mechanics but can't multiply.

#10     May 6, 2009
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