Trade and the power of compounding - what you don't know could be killing your statements!

What is the method unique, potentially more profitable, you can use in trading Forex, shares or futures?

Albert Einstein knew a century ago. He said: "compound interest is the most powerful force in the universe."

If this is the most powerful force in the universe, it should certainly be important in the trade too!

Let me show you how it works. Suppose that your business strategies have $ 300 per month on average.

It may be nothing to be proud, right?

Now see what happens if you increase the size of your position by 1/3 or 33% each time after you have made your average monthly profits with your strategies.

Next month, you could win $400. Increase your new size and another month may bring you $ 500. Now, close your eyes and guess at what level, your earnings may increase after you can increase the size of your position 18 times?

After the first increase: $400
After the increase of the 2nd: $500
After the 3rd increase: $700
After the 4th increase: $900
After an increase of 5: 1 $200
After an increase of 6: 1 $600
After an increase of 7: 2 $100
After the increase in 8: 2 $800
After the increase of the 9th: $3,700
After the 10th increase: $5,000
After an increase of 11: 6 $600
After an increase of 12: 8 $800
After increasing 13: 11 $800
After an increase of 14: 15 $500
After an increase of 15: 20 $500
After an increase of 16: 27, $000
After an increase of 17: 36, $000
After an increase of 18: 48 $000

$48,000 per month? Correct, mathematics never lies. Earnings grew at this level on the patience and discipline combined with good business performance.

It is always your decision as a trader to increase the size of your position (or not) and how many. This power is in your hands and you do not need approval from others to do so.

I am sure that ask you "If this is so great, why others would use it not?" Where is the catch? ". Major issues.

Why most traders fail with capitalization? What must be done so the transform to your advantage?

You need 3 things to prepare to work:

1. Your business strategies can deteriorate. They must continue to make a profit from the markets. Otherwise, you cannot increase the size of the position.

2. When your trade product loss or draw-downs, they must be small enough to continue to trade with the same size of position.

3. Don't be not aggressive! If you size double position after too small profits, your account is entitled to a loss of the disaster.

If you break one of the above rules, aggravating will never work for you. How to choose the strategies that have little chance to fail, have small samples and how increasing the size of the position?

I will explain each of these topics in detail.

1. What is the most effective component of a strategy, it could deteriorate?

Answer: no stoploss!

Remember to purchase S & P 500 index ETF shares symbol "Spies" to 1400 in the year 2000. The price dropped below 700 eight years later. Therefore, always use stoploss your strategy of all. It will limit potential losses. What is the 2nd most powerful way to lose the strategy? Trades too frequent. For example, if your strategy made 3 trades per day on a single market... sooner or later it could be 3 losers trades, ten days in a row!

Make no mistake, that each strategy may stop making money. Your job is to reduce the chances of such a scenario. If you are the two different strategies instead of one, the chances that the two will begin to lose at the same time are smaller. Its called diversification - trade of many strategies in different markets.

2. How to keep your drawdowns as small as possible? The combination of the two methods is statistically more effective:

limit losses on every single strategy using loss orders to stop and low number of tradesuse various strategies to execute winning trades.

These large winning trades will not happen often. But when this will be the case, losses from other strategies is likely to be covered.

3. Why you should avoid double your size? Suppose that you traded Forex minilots 3.

You have realized profits and suddenly decided to increase the size of 100%, 6 minilots.

Booom! A levy starts at this time. You'll Pocket series of losses on 6 minilots, but you did only 3 minilots trade gains. It will be almost impossible to make money in the long term. This is why it is preferable to increase your position of maximum 1/3. He doubled or increased by 50% is simply too.

"Slow and steady win the race."

More quickly, you start to use the power of compounding, faster it can help you achieve your financial goals. Confucius said it best: "a journey of a thousand miles begins with one step." A first step and see where the magic of compounding can take you.