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COMPOUNDING This is an exercise in compounding brought to you by Stealth Forex
Trading Systems The following is for information purposes only and must not be considered as investment advice Trading on the foreign currency
exchange carries a high level of risk and is not suitable for everyone 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 $5000 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. On day one, trading
just one mini lot, the maximum stop loss that you could commit to is 100 pips |
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DAY $ 1
5010 2
5020 3
5030 4
5040 5
5050 6
5060 7
5070 8
5080 9
5090 10
5100 The maximum
stop loss that you could now commit to is now 51 pips caution is needed. 11
5120 12
5140 13
5160 14
5180 15
5200 16
5220 17
5240 18
5260 19
5280 20
5300 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% . 21-40 5700 41-60 6100 61-80 6500 81-100
6900 101-120 7200 121-140
7600
AS YOU CAN SEE, AFTER 7 MONTHS OF CONSERVATIVE
TRADING, YOUR ACCOUNT HAS GROWN BY MORE THAN 50% YOU
NOW INCREASE LOT SIZE TO THREE LOTS REMEMBERING THAT YOUR WIDEST STOP LOSS MUST NOT EXCEED
51 PIPS 141-160
8200 161-180
8800 181-200
9400 201-220
10,000 AFTER JUST 11 MONTHS OF TRADING,
YOU HAVE DOUBLED YOUR TRADING ACCOUNT. 221-240
10,800 241-260
11,600 261-280
12,400 281-300
13,200 THE ACCELERATION NOW REALLY KICKS
IN AS YOU INCREASE TO 5 MINI LOTS AFTER JUST 300 TRADING DAYS. REMEMBER THAT YOUR WIDEST STOP
LOSS MUST NOT EXCEED 52 PIPS 301-320
14,200 321-340
15,200 INCREASE TO 6 MINI LOTS MAXIMUM STOP LOSS 50 PIPS 341-360
16,400 361-380 17,600 INCREASE TO 7 MINI LOTS MAXIMUM STOP LOSS 50 PIPS 381-400
19,000 401-420
20.400 INCREASE TO 8 MINI LOTS MAXIMUM STOP LOSS 51 PIPS 421-440
22,000 441-460
23,600 INCREASE TO 9 MINI LOTS MAXIMUM STOP LOSS 52 PIPS 461-480
25,400 INCREASE TO 10 MINI LOTS
(EQUIVALENT OF 1 STANDARD LOT) MAXIMUM STOP LOSS 50 PIPS 481-500
27,400 INCREASE TO 11 MINI LOTS MAXIMUM STOP LOSS 50 PIPS 501-520
29,600 521-540
31,800 INCREASE TO 12 MINI LOTS MAXIMUM STOP LOSS 53 PIPS 541-560
34,200 INCREASE TO 13 MINI LOTS MAXIMUM STOP LOSS 52 PIPS 561-580
36,800 INCREASE TO 14 MINI LOTS MAXIMUM STOP LOSS 52 PIPS 581-600
39,600 INCREASE TO 15 MINI LOTS MAXIMUM STOP LOSS 52 PIPS 601-620
42,600 INCREASE TO 16 MINI LOTS MAXIMUM STOP LOSS 53 PIPS 621-640
45,800 INCREASE TO 17 MINI LOTS MAXIMUM STOP LOSS 53 PIPS 641-660
49,200 INCREASE TO 18 MINI LOTS MAXIMUM STOP LOSS 54 PIPS 661-680
52,800 INCREASE TO 19 MINI LOTS MAXIMUM STOP LOSS 55 PIPS 681-700
56,600 INCREASE TO 20 MINI LOTS
(EQUIVALENT OF 2 STANDARD LOTS) MAXIMUM STOP LOSS 56 PIPS 701-720
60,600 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. 721-740
64,800 INCREASE TO 22 MINI LOTS MAXIMUM STOP LOSS 58 PIPS 741-760
69,200 INCREASE TO 23 MINI LOTS MAXIMUM STOP LOSS 60 PIPS 761-780
73,800 INCREASE TO 24 MINI LOTS MAXIMUM STOP LOSS 61 PIPS 781-800
78,600 INCREASE TO 25 MINI LOTS MAXIMUM STOP LOSS 62 PIPS 801-820
83,600 INCREASE TO 26 MINI LOTS MAXIMUM STOP LOSS 66 PIPS 821-840
88,800 INCREASE TO 27 MINI LOTS MAXIMUM STOP LOSS 65 PIPS 841-860
94,200 INCREASE TO 28 MINI LOTS MAXIMUM STOP LOSS 67 PIPS 861-880
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