Compound interest (2% per day)
Of course those stories have another side to them. Situations where someone becomes rich overnight are rare and for each success story there are hundreds if not thousands of failures.
The reality is that investing and trading are hard. Especially in a market that moves fast and sometimes does not seem to make any sense at all. It’s easy to forget about the risks and jump right in. After all, how many times can you be unlucky?
The answer is: Many, many times. In fact there’s a saying:
..The markets can stay irrational longer than you can stay solvent.
Here’s a suggestion for growing your money over time. I call this my 2% lecture.
Instead of focusing on big gains, aim for small, but consistent profit. If you make 2% per day, you’re a winner. Why? Compound interest. Here’s how it works.
Say you start trading with $1.000,00 on day 1, and you turn a 2% profit. You’ll end the day with $1.020,00. It may not seem like much but it’s more than your bank pays you.
On the second day, you start with $1020,00 and you make another 2% profit. You’ll end the day with $1.040,40. Those 40 cents might make you filthy rich.
On the third day, you start with $1.040,40 and you make another 2% profit. You’ll end the day with $1.061,20. So on day one, you made $20, day two you made $20,40 and on day 3 you made $20,80.
If you were to steadily make 2% of profit per day, it would take you 233 days to make $100k. How much would you make in a year?
The answer is $1.377.408,29. Compound interest.
Of course, 2% per day is ridiculously high. You may be fine for the first couple of days but there’s going to be bad days too. Once you’re trading with more money than you’re comfortable with, that’s where things get more difficult. It’s necessary to control your emotions and view your money as numbers on a screen instead of your livelihood. In fact on day 1 when you invest $1000, consider that money lost. Detach yourself from that money and gain self-control. Self-control is what separates failed traders from successful traders in the long run.
The other trick is to not allow for more than 2% loss per day. If you have a losing day, you lose 2% at most. That means you lost that day and the day before, but your losses are under control. You have time to step back, look at what happened and learn from your mistakes, but you’ll live to try again the next day.
Over time, you will become more comfortable with trading and that 2% per day, even though it’s a lot more than it sounds, will become more realistic. If you have more winning days than losing days, you’re doing it right. You could also risk less than 2% per day, for instance 1% per day. A losing day sets you back less and your trading sessions will be shorter.
Whatever you choose, there will be no more risking too much on this “one chance”. Slow and steady wins the race.
Feel like learning more? At Filthy Rich Futures, we do high leverage trading that is inherently very risky, while preaching solid risk management and this very 2% per day rule.
This blog was posted earlier on RushRadar at https://rushradar.com/compound-interest-in-crypto/