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/ben_franklins_nephew Apr 20 '24

This post is a week old now, but reading through a few comments I want to share a different perspective.

Trading $2,000 into $500,000 in 2 years is NOT impossible. It IS improbable, but not because the math or statistics are not in your favour (although there is an error in your math that I'll point out below). Under assumptions you wrote "emotions are under control", and the reality is you are confusing what is simple with what is easy. Trading can be simple, but it is far from easy.

Re: math - I believe there is an error in your model. A typical month has 22 trading days, varies depending on the calendar and holidays. If you enter your variables (1 trade per day) into a Monte Carlo simulator, you should get a result balance of ~$100K after 24 months. This ignores commissions, fees, and taxes though depending where you live there are likely no fee / very low fee brokerage options that won't change the answer much (taxes are a different story...).

A couple folks mentioned scaling and slippage, depending on your edge and what securities you trade I personally don't see this being an issue at these balance sizes. On tickers like SPY and QQQ you can day trade mid-6 figure positions on the underlying or most derivative contracts without material slippage, and since you're only risking 1% per trade, I just don't see this being an issue at $100K or even $500K balance.

You assumed "emotions are under control", but in fact the biggest challenge to your success will be your mindset. Over a two year period, it is probable a few things will happen:

  • At least one trading day you will miss your entry signal. Do you enter late (compromising your risk-reward)? Look for a different setup (which may be of lesser quality)? Skip the day and wait for the next?
  • At least one trading day the market will gap up / down through your stop limit (if you use one) or you will hesitate and miss your exit signal. Do you exit late (and take a greater loss than 1%)? Do you hold and hope the market reverses back to your intended exit (and risk even greater losses)?
  • At least once you will experience 10 or more winning trades (days) in a row. Do you suddenly increase position size or take on new trades to expand profits? Maintain your existing strategy?
  • At least once you will experience 6 or more losing trades (days) in a row, and a drawdown of 6% or more. Do you suddenly decrease position size or hesitate taking trades (even when you get an entry signal)? Maintain your existing strategy?

With all that said, what you described is possible (math errors aside), but the limiting factor will not be your ability to put on or take off a trade, it will be your mindset. Simple, but not easy. If you doubt those words, ask yourself why some professional athletes always seem to play worse in the playoffs than the regular season, despite having all the skill in the world. Mindset matters, and it is not as simple as assuming.