Compounding: one of the greatest forces in the Universe - according to Albert Einstein.
It is basically we invest 1000 get 10%... we get 1100 ($100 profit)... next time we invest $1100 and get the same 10%... but now profit is $110.
This you will notice is smartly incorporated in our portfolio management in the Ten Trades Challenge program, and many other methods. Consider this ten trade challenge your fast-track course into pro trading.
This of course works only for winning traders who have an edge and more wins than loses.
Imagine you have 7 accurate 10% trades, and for ease of math, when stopped it's 10% loss...
1 becomes 1.1
1.1 becomes 1.21
1.21 becomes 1.331
Then we lose 10% it becomes
+ 10% = 1.31769
+ 10% = 1.4494
+ 10% = 1.5944
we lose two
1.29 + 10% = 1.42
42% gain to your overall portfolio...
Now compare it without compounding...
0.1 + 0.1 - 0.1 + 0.1 + 0.1 + 0.1 -0.1 - 0.1 + 0.1 + 0.1
Now this may not seem as much difference, but it is like a magnifying glass... the bigger the winning streak the bigger the exponential growth - thus increasing, magnifying your trading edge.
All you need to benefit from this free money is know your edge. If you are above 50-50 trader, you can benefit from it on the long run.
When losing (under your starting portfolio), don't be compounding :) Ensure you do have an edge.