This is an exercise in compounding brought to you by Stealth Forex Trading System™.
Part of the art of successful trading is to never trade with more than 2% of your trading account, but if you compound your winnings (*that means leaving them in your trading account) you can gradually trade bigger lot sizes whilst staying at the same risk factor of 2%. In fact as your account crosses the $200,000 barrier, you should reduce your risk level to 1%.
For the purpose of this exercise we will assume that you opened a mini account with $5,000. Let’s now very conservatively assume that you make an overall average of just 10 pips profit per day. That’s just $10 on day one.
It is important to understand that for the purpose of demonstration, we are looking at things from a daily viewpoint, but in reality this would not necessarily be so. It could be that you reach the point to increase (or decrease) your lot size on a daily, weekly, or monthly period, or indeed any other time period. The real point of increase will always be determined by the current state of your trading account at any given time.
When compounding to turn a modest investment into a veritable fortune, you should always increase (or decrease if necessary) your lot size according to the 2% maximum risk rule.
Should a couple of bad trades set you back, do not be afraid to reduce your lot size in line with the 2% money management rule. NEVER just carry on hoping that all will be well, because that is the surest route to disaster.
If trading more than one lot and using the system recommended stop loss would cause you to commit more than 2% of you trading account if the trade ran against you, DO NOT take that trade! Make sure that you fully understand this point.
You also need to be prepared for the fact that this method of accrual is slow to start, but accelerates quite rapidly.
| DAY | $ | Size of lot (mini lots) | Maximum stop loss (pips) |
|---|---|---|---|
| 1 | 5,010 | 1 | 100 |
| 2 | 5,020 | 1 | 100 |
| 3 | 5,030 | 1 | 100 |
| 4 | 5,040 | 1 | 100 |
| 5 | 5,050 | 1 | 100 |
| 6 | 5,060 | 1 | 100 |
| 7 | 5,070 | 1 | 100 |
| 8 | 5,080 | 1 | 100 |
| 9 | 5,090 | 1 | 100 |
| 10 | 5,100 | 1 | 100 |
| 11 | 5,120 | 1 | 51 |
| 12 | 5,140 | 1 | 51 |
| 13 | 5,160 | 1 | 51 |
| 14 | 5,180 | 1 | 51 |
| 15 | 5,200 | 1 | 51 |
| 16 | 5,220 | 1 | 51 |
| 17 | 5,240 | 1 | 51 |
| 18 | 5,260 | 1 | 51 |
| 19 | 5,280 | 1 | 51 |
| 20 | 5,300 | 1 | 51 |
So far after just one month (there are approximately 20 trading days in a month) the compound interest on your investment is running at 6% per month which compounded annually would be a little over 100%.
But we are far from finished increasing our investment.
| DAY | $ | Size of lot (mini lots) | Maximum stop loss (pips) |
|---|---|---|---|
| 21-40 | 5,700 | 2 | 51 |
| 41-60 | 6,100 | 2 | 51 |
| 61-80 | 6,500 | 2 | 51 |
| 81-100 | 6,900 | 2 | 51 |
| 101-120 | 7,200 | 2 | 51 |
| 121-140 | 7,600 | 2 | 51 |
As you can see, after 7 months of conservative trading, your account has grown by more than 50%.
| DAY | $ | Size of lot (mini lots) | Maximum stop loss (pips) |
|---|---|---|---|
| 141-160 | 8,200 | 3 | 51 |
| 161-180 | 8,800 | 3 | 51 |
| 181-200 | 9,400 | 3 | 51 |
| 201-220 | 10,000 | 3 | 51 |
After just 11 months of trading, you have doubled your trading account
| DAY | $ | Size of lot (mini lots) | Maximum stop loss (pips) |
|---|---|---|---|
| 221-240 | 10,800 | 4 | 51 |
| 241-260 | 11,600 | 4 | 51 |
| 261-280 | 12,400 | 4 | 51 |
| 281-300 | 13,200 | 4 | 51 |
The acceleration now really kicks in as you increase to 5 mini lots after just 300 trading days.
| DAY | $ | Size of lot (mini lots) | Maximum stop loss (pips) |
|---|---|---|---|
| 301-320 | 14,200 | 5 | 52 |
| 321-340 | 15,200 | 5 | 52 |
| 341-360 | 16,400 | 6 | 50 |
| 361-380 | 17,600 | 6 | 50 |
| 381-400 | 19,000 | 7 | 50 |
| 401-420 | 20,400 | 7 | 50 |
| 421-440 | 22,000 | 8 | 51 |
| 441-460 | 23,600 | 8 | 51 |
| 461-480 | 25,400 | 9 | 52 |
| 481-500 | 27,400 | 10 | 50 |
| 501-520 | 29,600 | 11 | 50 |
| 521-540 | 31,800 | 11 | 50 |
| 541-560 | 34,200 | 12 | 53 |
| 561-580 | 36,800 | 13 | 52 |
| 581-600 | 39,600 | 14 | 52 |
| 601-620 | 42,600 | 15 | 52 |
| 621-640 | 45,800 | 16 | 53 |
| 641-660 | 49,200 | 17 | 53 |
| 661-680 | 52,800 | 18 | 54 |
| 681-700 | 56,600 | 19 | 55 |
| 701-720 | 60,600 | 20* | 56 |
Congratulations, you have just completed 3 years of profitable trading. From a humble start with just $5000 you have increased your investment to a substantial $60,600. If you had started with a regular account of $50,000, using the same modest formula you would now have over $600,000.
Don’t worry; you can get there because the real acceleration now begins.
| DAY | $ | Size of lot (mini lots) | Maximum stop loss (pips) |
|---|---|---|---|
| 721-740 | 64,800 | 21 | 57 |
| 741-760 | 69,200 | 22 | 58 |
| 761-780 | 73,800 | 23 | 60 |
| 781-800 | 78,600 | 24 | 61 |
| 801-820 | 83,600 | 25 | 62 |
| 821-840 | 88,800 | 26 | 66 |
| 841-860 | 94,200 | 27 | 65 |
| 861-880 | 99,800 | 28 | 67 |
| 881-900 | 105,600 | 28 | 68 |
| 901-920 | 111,600 | 30 | 70 |
| 921-940 | 117,800 | 31 | 72 |
| 941-960 | 124,200 | 32 | 73 |
In the past 960 days using a modest return and the benefit of compounding you have turned an initial investment of $5000 into a quite staggering sum of $124,200.
In the past 12 months you have more than doubled your trading account.
If you continued to compound your account at this rate, in less than a further 3 years you would have turned your original investment of $5000 into more than $1,000,000.
* We should point out that when we refer to a trading account, we do not necessarily mean that you keep all of your trading money in your margin account with your broker. You may consider having a separate account at your own bank and keep sufficient money in your margin account to trade with on a day to day basis. So long as you do not remove money from your overall trading reserve (margin account & separate bank trading account) you may still consider the overall as your trading fund for the purpose of compounding and money management.