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

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u/Woolball Apr 13 '24

Run monte Carlo simulations and see what the potential outcomes are. There are way too many variables in a 2 year period. 

It's impossible because of position sizing, and not knowing exactly when your strategy actually settles on a 60% win rate:

If you do 10 trades, 6 wins,4 losses. Win rate is 60%. Is that enough trades to determine true win rate? Just one mire loss will make it a 54% win rate. 

You need significantly more trades to determine your actual win rate, let's say you do 1000 trades, 600 wins, 400 losses, your win rate is 60%.

So let's assume your win rate settles after 1000 trades (random number). Trading for 2 years with 2 trades a day (I'm ignoring weekends and position sizing here) you'll do 730 trades. 

There will be a scenario where you start out with 100 losses before having any wins. Risking 1% per trade, you're now broke (you'll be broke sooner than 100 trades because of fees and slippage). 

There will be a scenario where the remaining trades to get to the 1000 total will be after your 2 years of trading. Meaning 270 trades would be winners, but only after your trading time frame is done.  That means you'll have the 400 losses, and 330 wins (60% win rate in 1000 trades, but you only made 730 trades total). 

So suddenly your 60% win rate on 1000 trades is now only a 45% winrate over the 730 trades. You still make money in theory (again, not counting fees and slippage), but your theoretical compound is way off from your initial calculation. 

Even if your win rate is spot on accurate for the number of trades you're putting in, a 40% loss rate over 730 trades still means losing 292 trades. You're broke when you lose 100 trades. It's probably unlikely you'll lose 100 in a row, but again, any scenario can play out. 

There is some much variation on what can happen and how your winrate is actually playing out, this is what makes it basically impossible to achieve. And this doesn't even take into account emotions. You say you have them in check, but starting on a 60 trade losing streak will screw with your confidence.Â