Compounding For Success

[Doomberg]

Ok so i seen an interesting thread from 7 years ago and think it would be good to see what your opinions are on this... Firstly i'm aware that the below figures are not 100% verbatim as there are many factors that would stop you from turning 10k in to 1million in exactly 22 months with 1% returns each day. However it's very interesting and is mathematically correct, if the money was not touched for this time and was compounded with each increase then this is the increase you would see.

1. If you started trading with £10,000 and averaged a 1% return every day
2. Reinvested that return and got another 1% the next day ect.
3. Traded 5 days of the week, 52 weeks of the year

Then you would have £1,000,000 in 1 year and 10 months

Here's more examples of how effective compounding can actually be:

1% return a day on your capital - your capital DOUBLES every 71 days
2% return a day on your capital - your capital DOUBLES every 37 days
3% return a day on your capital - your capital DOUBLES every 26 days
4% return a day on your capital - your capital DOUBLES every 20 days
5% return a day on your capital - your capital DOUBLES every 17 days
6% return a day on your capital - your capital DOUBLES every 13 days

Whats your views on the above stats? Also how often do you guys compound?
Say for example if you made an increase on most trading days, do you take
that in to account instantly or do you wait for a week or a month to increase
the stake sizes to larger amounts?

 

[barjon]

Perhaps the more pertinent table is this one

 

[Doomberg]

Come on jon you're a mod, are you not supposed to be more positive :cheesy:

 

[rc450]

Come on jon you're a mod, are you not supposed to be more positive :cheesy:

he was there's no 100%++++ loss of capital on there

 

[the hare]

He is being positive, but perhaps you cant see it.

The problem is that not every trade is a winner, and not every day is profitable (for example, my win rate isnt great, and I typically have more losing days than winning days)

If I lose 10%, then I have to make 11% just to break even, and this screws up the theoretical rate of compounding.

I also trade a diversifed bunch of sytems, some compound, and some dont, and the results are always a bit hit and miss, some years compoundng works well, some year constant contract sizing works better.

I will concede that its possible that the methodology that I trade plays some part in this random distribution of returns, but I wouldnt be surprised if other people didnt share similar experiences

 

[Pazienza]

Perhaps the more pertinent table is this one

Compounding works, don't get me wrong, and can have a dramatic effect quite quickly. But these "Only 2% per day equals making Warren Buffet look like a ragged and hungry clown within 3 months" things are just pie in the sky.

Don't forget as well that you will need to take money out to live / pay bills / get your Bugatti polished etc.

In answer to your question, I adjust after every trade. This is down as well as up, which I think is important.

I'm also still feeding capital in and will be for the rest of the year probably - this is a smallish percentage of the remaining capital allocated for trading each time I achieve a certain goal, so I reward myself for success by increasing the size of my account. If I am not successful, I don't put any more capital at risk.

 

[Black Swan]

Ok so i seen an interesting thread from 7 years ago and think it would be good to see what your opinions are on this...

and in those seven years how many times do you think such questions have been raised? Be worth you checking before you start any other threads..any other threads...any other threads...

Oh and compounding lives with your fairies at the bottom of your garden..that is all..

 

[Doomberg]

and in those seven years how many times do you think such questions have been raised? Be worth you checking before you start any other threads..any other threads...any other threads...

Oh and compounding lives with your fairies at the bottom of your garden..that is all..

Leave me alone you solipsistic old iceberg

 

[Pazienza]

Leave me alone you solipsistic old iceberg

He does have a point though. For most people starting with £1,000 and building up to a million is just not going to happen. At some point, a serious injection of capital is likely to be required.

Instead of compounding, most people would be better off learning and demoing whilst getting the necessary money together from employment / inheritance / crime etc. Once you've got realistic pot, then you can start trading it in earnest.

 

[new_trader]

Leave me alone you solipsistic old iceberg

I like to expand my vocabulary and that is the word of the day! I can’t wait to use it in a sentence...Solipsistic...I like it!

As for the thread title ‘Compounding for success’... I think you’ve got it slightly wrong. IMO: Compounding does not lead to success; the success must come long before the compounding begins. By success, I mean consistently profitable.

 

[Mata Nui]

Compounding that way is very risky unless your reward is greater than the risk. If you have a simple 1:1 r:r compounding like that will slowly bleed your account. Every loss will be more than the last win and every win after the loss will be less than the original loss.

 

[Hotch]

Compounding that way is very risky unless your reward is greater than the risk. If you have a simple 1:1 r:r compounding like that will slowly bleed your account.

Only if your win rate isn't high enough.

 

[Pazienza]

Only if your win rate isn't high enough.

Just out of interest, how do people count break evens when looking at this?

For example over the last month, I've taken 16 trades - 10 wins, 1 loss, 5 break even.

Would you count that as a 90.9% hit rate (10 / 11), or a 62.5% hit rate (10 / 16)?

 

[new_trader]

Just out of interest, how do people count break evens when looking at this?

For example over the last month, I've taken 16 trades - 10 wins, 1 loss, 5 break even.

Would you count that as a 90.9% hit rate (10 / 11), or a 62.5% hit rate (10 / 16)?

In the real world a break-even trade incurs a commission charge so you do lose money, therefore I calculate my win rate as a percentage of total trades.

 

[JRP2891]

Just out of interest, how do people count break evens when looking at this?

For example over the last month, I've taken 16 trades - 10 wins, 1 loss, 5 break even.

Would you count that as a 90.9% hit rate (10 / 11), or a 62.5% hit rate (10 / 16)?

Whenever I work out expectancy or a similar type performance measurement, I never include break-even trades, just wins and losses. Others might differ though.

 

[Pazienza]

In the real world a break-even trade incurs a commission charge so you do lose money, therefore I calculate my win rate as a percentage of total trades.

I've allowed for that - break even for me means moving the stop up enough to cover commissions as well.

 

[new_trader]

I've allowed for that - break even for me means moving the stop up enough to cover commissions as well.

I can't do that. 1 tick profit (the smallest ES increment) covers my commission and gives a profit. So for me it's either a profit, a loss or only a commission charge, I can't trade and end up with a profit/loss = $0

If I am just counting points, I still use a win rate as a % of total trades but I'm hard on myself...you don't want to know what I do to myself when I spill milk

 

[Pazienza]

I can't do that. 1 tick profit (the smallest ES increment) covers my commission and gives a profit. So for me it's either a profit, a loss or only a commission charge, I can't trade and end up with a profit/loss = $0

If I am just counting points, I still use a win rate as a % of total trades but I'm hard on myself...you don't want to know what I do to myself when I spill milk

It's not always exact, but if if it's a tiny amount plus or minus I count it as a break even. I don't like the idea of putting a $5 return down as a win.

Not that I pay much attention to hit rate, it's just out of interest really. Win rate really doesn't seem to be a particularly useful thing to measure (just my opinion).

 

[barjon]

Just out of interest, how do people count break evens when looking at this?

For example over the last month, I've taken 16 trades - 10 wins, 1 loss, 5 break even.

Would you count that as a 90.9% hit rate (10 / 11), or a 62.5% hit rate (10 / 16)?

Paz

What's a "win"? Finishing up on the plus side, meeting target, or what.

Maybe better to think in terms of return on risk (R).

So, on that basis, your return is somewhere along the range of -1R to +xR and your job is to keep the average above zero and rising if you can. From that perspective your b/e trades have helped a bit since you kept the trades above -1R.

jon

 

[EricReed]

he was there's no 100%++++ loss of capital on there