A game of capital or cash management?
For certain people, forex is nothing but a capital sport. The bigger capital you have, a better probability of success. To many others, it’s about superb wealth management. It’s not about how big your capital is, but how smart you manage risks. For me, we don’t have to contradict those two views. Imagine what you can achieve doing both properly!
Risking too much: A very bad idea!
Greedy yet foolish traders often expose 10% or more each trade to earn 100% gain in a month, before find their accounts blown up at the end of the quarter. That means, in order to multiply their wealth, they put too much at stake, which is not a great idea. So, is there a way to build up our asset in a month or less by risking only 1% per trade? Well, keep reading to find the “magic”:D
The Basic Concept
Compound investing is a technique known to have the ability to increase our venture very fast by reinvesting profit so our fortune can grow exponentially. As far as I know, it is the best way available for us who want to boost their investment. That being said, there is no holy grail. There will always be risks that we must willing to take.
The Core System
- $1000 deposit
- 1:1 risk/reward (R/R) ratio per trade (1%=$10)
- Add the amount of R/R for every profitable trade using this formula: 1X, 2X, 3X and so on. For instance, you bet $10 at the first trade and win. On the second trade, you bet $20 (2X) and $30 (3X) for the third trade and so on.
- For every losing trade, DO NOT add the R/R amount. Stay at $10.
If you read those key aspects carefully, you will find out that the most important aspect of this method is the winning streak. As shown in the table below, in order to reach a 100% return of investment, 14 consecutive profitable deals are required.
Dear fellow traders, I don’t know about you, but that sounds super duper awesome for me! Suppose you trade once a day, you need about 2 weeks to double your capital. If you trade twice a day, you need only about a week to get to your 100% gain. Again, with risking virtually only 1% per trade.
The variations of the method
Compound investing applied to currency trading has many alternative and the method in this article is only one of them. For example, you can have a 1:2 R/R ratio rather than 1:1. Or, you can use 2% R/R rather than 1% per trade, and many other variations. You must find a method that suits your own trading style and personality. Whatever method you chose, just make sure that the exposure must be a lot smaller compared to the reward.
Final words…
One of the golden rules in any business environment is the high-risk high return principle. It simply means that a growing return always accompanied by a growing risk. If you put your funds in bank savings, there is a very little chance that you are going to lose it. On the other hand, there is also a very small chance that you gonna be prosperous from your financial activity.
Nonetheless, if you invest in stocks, options, currencies, or even gambling on the casino, there is a good probability you are gonna be rich in one night. Conversely, as the golden rule stated, there is also a good possibility that you are going to be a bum the next morning. There is no escape from this code.
That being said, some says that rules are made to be broken. At least, we can modify that law, making it works for our advantage. I believe the materials in this article help you to bend that law.