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The importance of compound interest in money management The importance of compound interest in money management Definition: A capital is invested

at compound interest when the interests of each period are incorporated into the capital to increase gradually. Consider a trade in forex as an example of the period. A trader wants to can risk 1% of his initial capital on each trade. So with a capital of 1 000 000$ he is going to risk $ 10 000 on each trade. Suppose he wins 10 positions in the year of 20 000 $ each, and lost 10 positions of 10 000 $ each. His final gain will be (20 000*10)-(10 000*10)=100 000 $. Now imagine that this same trader also decides to risk 1% of his capital on each trade and that after each win and each loss he updates his risk. So after losing his risk taking will be weaker after each win the risk will be higher. Using compound interest with the same 10 winning positions and 10 losing positions the final result is now 102 436.70 $ a gain of further 2 436.70$. This does not seem huge but on the long run the difference is huge!!! After 10 years without using the compound interest the final capital is 2,000,000$. With compound interest the final capital is 2 651 774.78$ a difference of 651 774.78$! Imagine over a lifetime I think a lot of people knew the principle of compound interest but it is a good feature to remember to improve results. Last edited by Trader333; May 24, 2011 at 6:50am. Reason: Removed link

How To Make Money Trading The Markets. The idea behind this thread is to show it is not difficult to make money from day trading US stocks given good methodology and the self-discipline and control to follow and trade it. No complex formulae or indicators are needed. Neither do you need great foresight. You need to see what is in front of your eyes and act accordingly on that evidence nothing else, no hope, no fear. This is just one of about a dozen set ups I use to day trade US stocks in all sorts of market types, trending, range-bound, grinding etc. Ive been earning my living doing this since 1999 and the methods work consistently well, but nothing is infallible and you need the right tool for the right job at the right time. Above all you need self-control and the humility to realise you are not the master of the markets, you are not clever, you are merely an individual who is going to carefully choose high probability situations to make consistent money from the markets. I often use specific triggers to confirm the trade entries and often the exits. Those triggers are level2 buy and sell pressures and Time & Sales. These refine the trades and often keep me out of the ones which dont work out; not always, but often enough to give me a powerful edge. I intend to show in this thread one of the techniques which works consistently. This thread will only include charting, not level 2 buy and sell pressures and Time & Sales. The method Im going to show is fairly straightforward and works well with stocks which are either strong or weak and clearly trending. It is not necessarily about trying to find the beginnings and ends of trends, although it does sometimes indicate the end of a move. This is about taking bites out of trends repeatedly and consistently. Ill talk about the set up, the conditions, how to decide about position size to minimise risk, where the

worst case scenario stop can be placed, and why. Personally I tend to be very risk averse and will exit a trade even though the chart doesnt show the end of the move is likely within the time frame Im trading. My trigger for the exit is often when I see (in a short) buy pressure building and when I see (in a long) sell pressure building on level 2 T&S. This often is apparent before any sign on the chart, which puts me ahead of most traders. There will be examples and then descriptions and clarification to follow. Remember, nothing is infallible, trading is a percentage business. Some trades will fail but it is absolutely vital that losses are kept to a minimum. I dont look for a huge move with this technique although it happens sometimes anyway. Price action dictates the trade. I control maximum potential loss, (slippage is relatively rare), market action controls the exit from profitable trades. Im very happy to take what the market offers. There were plenty such opportunities to make money this afternoon using this straightforward technique. In all the charts the red cross hairs were at the time of entering the trade and the image captured at the time of exit. Three of my trades this afternoon were using this technique. All were successful. Richard __________________ Mr. Charts Full time US Share Trader To see just one of the ways I trade for a living:

http://www.trade2win.com/boards/us-s...g-markets.html
t2w interview

http://www.trade2win.com/knowledge/a...ichard-joyson/
The post above is recommended by: timsk , BSD , Bladerunner , the blades , peto , trader_dante , fibonelli , JTrader , Jack o'Clubs , RubenE , _JWG_ , kaciara , bangkoker , amit1986 , Beachtrader , iota , RonnieR ,

tonster01
Sep 2, 2008, 5:54pm #2 Re: How To Make Money Trading The Markets.

Mr. Charts
Legendary Member

Join Date:Sep 2001 Posts:5,507 This is the first of the three trades from this afternoon using this technique. It produced a profit of 43c, that's $860 for a 2000 share size, $430 for 1000 shares, $215 for 500 shares and so on. I'll discuss and clarify tomorrow. Richard Attached Thumbnails __________________ Mr. Charts Full time US Share Trader To see just one of the ways I trade for a living:

http://www.trade2win.com/boards/us-s...g-markets.html
t2w interview

http://www.trade2win.com/knowledge/a...ichard-joyson/

Sep 3, 2008, 9:05am

#3 Re: How To Make Money Trading The Markets.

Mr. Charts
Legendary Member

Join Date:Sep 2001 Posts:5,507 Thanks, options. With this approach I'm looking for stocks which are already in a clear trend and I just want a bite out of that trend. As the old saw goes, "the trend is your friend till the bend at the end", so I want some of that action and will be out either when level 2 buy/sell pressures T&S, (what I'll refer to as Micro-Analysis), warn me of a possible end to the move before it shows on a chart, or for the purposes of this thread when the chart tells me it might be over. As can be seen on the chart posted yesterday I shorted after the trend was established, if anything a little late, but that was when I discovered the stock. What I am looking for is an ongoing sequence of candles in the time frame I'm trading - one minute in this instance - where the tops of the candles are lower, (in a down move), than the previous candle. This tells me that sellers are still active and overcoming any buyers before the candle can even get above the top of the previous one. Although the last sentence is not always strictly correct, it is in over 95% of cases. In other words, in this time frame the sellers are still in control of the ball. As long as that continues I'm keeping my position open. It follows that once that pattern is broken by a candle rising above the high of the previous one, then there is a serious possibility that the move might be over. Time to close the position in full or in part and bank profits. Usually I close it completely. In the example shown, Micro-Analysis indicated buy pressures mounting and selling pressures declining so I exited. As it happens that was the final candle before a bounce. In the next post I'll talk about position sizing and ATR and after that about when to exit if the trades fails at or shortly after entry so any possible losses can be kept to a minimum. There will also be more charts. Richard __________________ Mr. Charts Full time US Share Trader To see just one of the ways I trade for a living:

http://www.trade2win.com/boards/us-s...g-markets.html
t2w interview

http://www.trade2win.com/knowledge/a...ichard-joyson/
Sep 3, 2008, 12:24pm #4 Re: How To Make Money Trading The Markets. This is the second trade from yesterday afternoon using that

Mr. Charts

Legendary Member

Join Date:Sep 2001 Posts:5,507

same technique - also SUN. This was 54c, again $1080 profit for 2000 shares, $540 for 1000, $270 for 500 etc. The same conditions were fulfilled for another winning trade. Richard Attached Thumbnails __________________ Mr. Charts Full time US Share Trader To see just one of the ways I trade for a living:

http://www.trade2win.com/boards/us-s...gmarkets.html
t2w interview