Compound Forex Profits

Albert Einstein said that Compound Interest was the greatest force on earth ! 

Try this on your kids:

"If you do all your chores & homework this month I will pay you megabucks. You have two choices. I can give you $10.000 now or I will give you 1 cent today, 2 cents tomorrow, 4 cents the day after, 8 cents the day after etc until the end of the month. In other words the amount doubles every day until the end of the month. Which would you prefer?"

Its a no brainer right. I'll take the $10.000 please ! WRONG ANSWER. If you take the 2nd option your 1 cent doubling per day will be worth $10.737.000 after 31 days. Thats right, over $10 million !! Get a calculator and do the maths to prove it to yourself/kids.  

What you will find is that after;

10 days you will only have $5.12
20 days it starts to get interesting $5242.88
28 days amazingly we hit our 1st $million $1,342,177.28
31 days an incredible $10 MILLION $ 10,737,418.24

No wonder the banks make so much money.

Make The Magic of Compounding work for you. 

How to turn $1000 into $1.000.000 in 2 years

The following example is based on taking $1000 to a million. In truth the stakes & winnings in the 1st few months would be so small that I would be bored rigid. But to simplify the maths: If you have $1000 in the bank at the moment you might be able to earn $20 interest for the year !

What if we could successfully make just 15 pips/$15 a day in forex & reinvest the profits? This is risking only 5% of your bank per trade with a 50 pip stop. Therefore maximum you can lose is $50 on a trade (we look for far bigger profits on a trade so this is way below worst case scenario. Also I have been averaging over 40 pips a day in the last 12 months)

*By day 8 our daily stake has increased to $1.10 per pip = $16.50. We are now gaining $1.10 per pip. By the end of the 1st month we would be looking at an account balance of approx

*By day 13 we are investing $1.20 per pip x 15 = $18

**Month 2's (20 trading days) stake will be $13.30 per month & so on. This is 33% return in 1 month. This is what attracts the big boys to forex. If you carry the sum forward, the 1st 6/8 months show steady rapid growth. Then compounding kicks in & the growth is phenomenal. If you can maintain 15 pips a day for 2 years your reward is multi millions.

Lets say we carry on with the chart, but only increase our stake at the end of the month. Therefore month 2 our 15 pips a day x 1.33 x 20 (trading days a month) =

End Month 26 $1.229 Million. Then it starts to get really scary !!!!

* For my $1.000.000 challenge I am going to start with $2000. It speeds the process up a few months and is easier for growing our trading account.

Also after some thought I have decided that as I am english I will trade in british pounds. This is unimportant for the challenge as the maths is the same.

The reason I have not changed the money into $ is that I believe that over the next 2 years that the gbp will be worth 15/20% more than its current value (gbp = $1 at time of writing this april 2009. Therefore a million gbp at the moment is worth approx $1.4 million. If I am right, then my million gbp will be worth $1.75 million.

Throughout the challenge I will refer to it as a $1million challenge. I will be trying, wherever possible to trade 4 hour & daily charts using the LMT- low maintenance forex trading formula system shown below. The results i have been getting late may, early june have been incredible (+1500 pips in 1st 2 days)!!

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