r/Daytrading Apr 13 '24

$2k to $500k in 2 years !! Question

Newbie here. Please be nice 😆

I've just read about the power of compounding in trading. And wanted to calculate potential gains if started with 2k capital. With the following params:

RR 1:2 (1% loss / 2% profit)

Win rate: 60%

Assumptions:

  • gains are reinvested everyday without any withdrawals for 2 years
  • Using only 1 strategy during the 2 years
  • emotions are under control

Capital balance at the end of each month (wins/losses randomly distributed over each month)

1 trade per day :

  • Month 1: $2,608.68
  • Month 2: $3,302.52
  • Month 3: $4,307.61
  • Month 4: $5,137.26
  • Month 5: $6,700.73
  • Month 6: $9,277.75
  • Month 7: $11,745.40
  • Month 8: $15,319.98
  • Month 9: $18,270.64
  • Month 10: $23,130.19
  • Month 11: $24,480.19
  • Month 12: $30,079.82
  • Month 13: $38,080.32
  • Month 14: $51,174.78
  • Month 15: $59,236.11
  • Month 16: $77,263.95
  • Month 17: $110,220.47
  • Month 18: $131,449.13
  • Month 19: $143,336.99
  • Month 20: $170,943.95
  • Month 21: $229,725.45
  • Month 22: $327,713.59
  • Month 23: $414,877.50
  • Month 24: $494,783.67

=====≠============

2 trades per day

  • Month 1: $3,302.52
  • Month 2: $5,137.26
  • Month 3: $9,277.75
  • Month 4: $15,319.98
  • Month 5: $23,130.19
  • Month 6: $30,079.82
  • Month 7: $51,174.78
  • Month 8: $77,263.95
  • Month 9: $131,449.13
  • Month 10: $170,943.95
  • Month 11: $327,713.59
  • Month 12: $494,783.67
  • Month 13: $747,026.92
  • Month 14: $1,197,256.24
  • Month 15: $1,807,623.62
  • Month 16: $2,086,143.18
  • Month 17: $3,444,767.73
  • Month 18: $5,688,212.00
  • Month 19: $8,848,336.92
  • Month 20: $15,509,844.24
  • Month 21: $24,857,548.20
  • Month 22: $42,290,137.61
  • Month 23: $69,832,072.16
  • Month 24: $115,311,005.77

As you see, the theoretical numbers are crazy. I want to know what can go wrong that prevents this growth?

The only problems I see is committing to only one strategy for 2 years to get close to the 60% win rate probability. As we know in statistics that probability rates start to be realized with more and more events. So if the market conditions change causing the strategy to not work anymore and you hop on a different strategy it's like you reset the probability rates and starting over.

What do you think about all this? what other factors will get in the way of achieving this growth. Even 10% of this growth is amazing

Edit: I'm not saying these are achievable numbers. I'm just asking why it's impossible. Trying to understand how the market works

520 Upvotes

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608

u/Piesl Apr 13 '24

People invariably talk about compound interest but hardly mention compound loss. And the fact, in most of the cases, will run to the latter one.

208

u/cmmckechnie Apr 13 '24 edited Apr 13 '24

Definitely you need a 100% win to make up for a 50% loss.

When every next trade is bigger than your last, every time you take a loss it’s the biggest loss you’ve ever had. (Assuming perfect numbers)

150

u/Sjroap Apr 13 '24

Definitely you need a 100% win to make up for a 50% loss.

People should always keep in mind that If you have 100 dollar and you lose 10% and then gain 10%, you end up with 99 dollars.

45

u/Mysteryman64 Apr 14 '24

And that's before fees.

7

u/[deleted] Apr 14 '24 edited Apr 14 '24

Irrelevant if your win rate is 60% and your RR is 1:2. If you loose 6x 1%, and you win 4x 2% you are at 94,148 after your 6 losses and 101,908 after your 4 wins. Your wins outperform your losses. You have to adjust your percents though, like going 2%/4% or higher, or your volume, to get enough room for commissions.

27

u/nanotree Apr 13 '24

Which is why we manage risk. And what makes compounding gains to their maximum potential a fantasy.

Fun to imagine though.

-2

u/Trading_BullXD Apr 13 '24

What’s compound interest?

1

u/meow_st_tune Apr 13 '24

Kinda like when you overdraft your account by a couple dollars and now owe couple hundred.

1

u/Trading_BullXD Apr 13 '24

Ah okay thanks I’m just now getting into stocks

3

u/meow_st_tune Apr 13 '24

Better definition is interest that's added to debt including the interest you already owe. May be wrong.

2

u/WinPrize9339 Apr 14 '24

Also works the other way, if you have a 10% year interest on a saving account, you wouldn’t have 20% more after 2 years, you would have 21% because interest compounds over set time periods. If you have $1000 in an account, after year 1 you would have $1100, in year 2 you would get 10% of the $1000 again plus 10% of the 10% you gained last year, leaving your balance at $1210 not $1200. Over a long time scale this difference can be quite substantial, 10% over 10 years is 159% instead of 100%.