2010-08-19

The power of compound interest!

Think in % not absolute.

A dear friend has started a blog http://mydailytwopercent.blogspot.com on a very simple principle – to earn 2% a day. Now it might sound simple to lots of traders, it requires a lot of discipline and hard work to achieve. Most macho traders tend to think in absolute terms. They want to earn $x per day. They think in terms of risk and reward in $x per trade. Whereas trading is a game of percentage and probability. Winning $1,000 on a $1,000,000 account is same as winning $10 on $10,000 but many traders might scoff at the returns of $10 and not consider worth their while. 2% return per day can turn $1,000 into nearly 78,000 by the end of year. Now that is power of compound interest. This is also the reason I report my HW trades in 2 lot basis instead of absolute position size.

I am looking forward to following my friend’s success with all my best wishes.