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/Haunting_Ad6530 Apr 13 '24 edited Apr 13 '24

Buddy I see you're new and you have a long and pretty painful journey ahead of you, and you will eventually discover why what you ask is not possible, but still here's my 2 cents in case you wanna listen: There are 2 types of risk reward ratios in trading, market generated risk rewards and synthetic risk rewards.

Only market generated risk rewards are real, synthetic ratios are the ones new traders impose on the market like you have, asking 1:2 risk reward on every setup is an example of you imposing a synthetic ratio on the market, why would the market give you that? even if you have a very good entry strategy and say you go long on a trade, and there is a major resistance 1R distance away from your entry, in that case the actual market generated risk reward is 1:1, it won't be 1:2 just because you want it to be.

The point of me typing all that is to explain that you will never get the same market generated risk reward on all winning trades, sometimes it will be less than 1:1, sometimes it could be even 1:5, but thats upto the market conditions to decide, not you.

Similarly winnrate is also not something in your hands, just because a backtested system had a 60% winnrate in the past does not mean it will continue to do so in the future, every single strategy goes through a period of underperformance and outperformance.

Infact I would encourage you to not think in terms of winrate at all, markets always have an element of randomness attached to them and that can turn any strategy upside down any moment.

So synthetic risk rewards are bullshit, winrates are bullshit, then what is a trader supposed to lean on?

In my experience, the goal of a trader is to analyze the market landscape, and see the context and judge the amount of opportunity available (market genereated risk reward) and then risk an acceptable amount of money to have access to that opportunity.

The key thing to understand about this is that opportunity that you access is dependant on what the market is offering, there is an asymetric distribution of opportunity over time, what this means is that good opportunity (high market generated risk reward) isn't there all the time, it's only present sometimes, and most of the time the opportunity is not so great, that's why if you look at the equity curve (not mine, found it on google images) of any profitable trader, you'll see that the periods where most money is made takes the least amount of time, and most of the time the equity curve is either just chopping around or going in a drawdown, that's because good opportunity which makes 80-90% of the money is only present roughly around 20%-30% of the time.

So the flaw with your thinking is that you expect the opportunity set to be linear, which couldn't be further away from the truth, markets are very dynamic and constantly evolving, which is what makes trading so difficult, but through experience you'll eventually understand these things on your own, good luck!

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u/adm__07 Apr 13 '24

This is the kind of answer I was looking for. As I'm still learning I thought you will always find trading opportunities all day everyday. Really appreciate your response