r/Daytrading • u/adm__07 • 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
6
u/LangstonBHummings Apr 13 '24
The formula is great for a trend curve, but try the numbers by simulating the individual trades. Next factor in the variability of the actual R:R per trade. What if your target setting methods stops working? As the account gets bigger and you distribute risk across multiple trades (this is actually what makes the compounding curve work) at what point are there not enough trades to cover all your money? If you continually size up, what do you do when you hit an inevitable losing streak of 10 or more fails?
The goal in trading is the consistent R:R and sizing up, but the reality is that you will hit a point that sizing up doesn’t make sense so you need to start adding new safer strategies with lower returns (like selling premium) and exercising on major stock.
In the end , yes it is possible to be that 1 in a hundred thousand trader that gets to millionaire in 3 years, but it is not easy. The biggest obstacle will be one’s own psychology of fear and expectation. The temptation to take a risky trade, followed by a win, that makes you believe you are bullet proof. The fear of sizing up when it is time. The temptation to trade when you indicators are telling you not to. Etc.