Compounding Forex Profits For Success

24 October 2011
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In this short yet informative article i’d like to highlight the importance of compounding consistent long terms profits in order to be a successful trader.

Every year hundreds and thousands of new traders come into the forex arena looking for riches, trading 24 hours a day shooting for 50% a week and find their accounts blown within the month, most of which become too demoralised to ever even consider depositing more funds and pulling the trigger on another trade, their trading career is over before it had even begun.

Those that become successful long term traders understand the power of compounding gains for huge eventual profits, they start small, aim low and believe it will all pay off in the future, however most human beings are born with a natural greed, an emotion that runs so strong in most people’s veins that the thought of 2 – 3% a week sends shivers down their spine and they become part of the above club, the 95% of unsuccessful traders.

As fun as it is to dream of doubling your money every fortnight it is important to be realistic of what to expect in terms of profit in both the short and the long term, the reality is a consistent weekly gain of 2 – 3% over the period of a year is no easy feat for even the best of traders however it is achievable for the few successful traders.

To most the idea of making a 2 – 3% weekly gain isn’t all that exciting, especially when compared to claims of 20,30 and even 40% returns a week that are often thrown around on the internet but the moment we add compounding into the equation those small weekly figures can amass to some huge yet realistic sums of money.

For those that dont understand the concept of compounding gains or interest it is the exponential growth of a sum of money by continuously reinvesting all profits, so although the profit percentage remains the same the actual sum of money grows at a very rapid rate.

As a very basic example lets assume we have £1000 in our trading account.

If we were to make a 10% return every month for a year and not re-invest any of it we would have made a 120% return equating to £1200.

If however we compound our gains every month we will end up with a much larger sum which i’ll demonstrate below.

month 1 – 1,000 + 10% = 1,100

month 2 – 1,100 + 10% = 1,210

month 3 – 1,210 + 10% = 1,331

month 4 – 1,331 + 10% = 1,464

month 5 – 1,464 + 10% = 1,610

month 6 – 1,610 + 10% = 1,771

month 7 – 1,771 + 10% = 1,948

month 8 – 1,948 + 10% = 2,143

month 9 – 2,143 + 10% = 2,357

month 10 – 2,357 + 10% = 2,593

month 11 – 2,593 + 10% = 2,853

month 12 – 2,853 + 10% = 3,138

Total gain in percentage – 213.8%

Total monetary gain – £2,138

A little impressed?

Now lets take it one step further by using our yearly return and compounding over a 7 year period with a starting balance of £1000

Year 1 – 1,000 + 213.8% = 3,138

year 2 – 3,138 + 213.8% = 9,847

year 3 – 9,847 + 213.8% = 30,900

year 4 – 30,900 + 213.8% = 96,964

year 5 – 96,964 + 213.8% = 304,273

year 6 – 304,273 + 213.8% = 954,811

year 7 – 954,811 + 213.8% = 2,996,198

Total gain in percentage – 299519.8%

Total monetary gain – £2,995,198

Now I think I can safely say that would be extremely impressive to anybody!

With the power of compounding gains figures like that eventually become realistic in the long term if you can remain consistently profitable at even 2 – 3% a week!

So if you really want to be successful aim for 2% a week instead of 20%, compound your gains and begin building your future!

Happy trading, Lee J Brown

About the Author

My names is Lee J Brown and I am a full time forex trader from london.

I also run a forex website where i offer informative articles, technical analysis as well as forex related product reviews.

http://www.profxblog.com

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