How many trades will you have to take to double, triple or quadruple your account value??
About 10 years ago when online trading was still in its infancy, a rather accomplished options trader posted a motivational message which claimed that if you started your trading account with $20,000 – that you could rally that starting balance to $1,000,000 simply by trading “6 doubles” as he called it. He went on to explain that “six doubles” meant placing an options trade 6 consecutive times that doubled in value each time. The math is as basic as it comes but for those of you who are not familiar with the power of compounding, here is the progression of those 6 trades with a starting account balance of $20,000;
1) $20,000 x 2 = $40,000
2) $40,000 x 2 = $80,000
3) $80,000 x 2 = $160,000
4) $160,000 x 2 = $320,000
5) $320,000 x 2 = $640,000
6) $640,000 x 2 = $1,280,000
So, as we can see, the statement was 100% accurate. Having said that – it is FAR from realistic. First, how many people or traders do you know that would take an “all in” approach when putting on a trade. That is like going to the casino with $2,000 in your pocket (think of that as your bank roll or your starting account balance), walking up to the roulette wheel and dropping all $2,000 on lucky number 7. If the little ball happens to land on any of the other 37 numbers on the table (yes – 37 … lets not forget there are numbers 1 thru 36 AND “0″ and “00″ for a total of 38 possible outcomes) then you’re on your way home awfully quickly! (unless of course you are foolish enough to have brought your credit or debit card with you!) Second, the author who wrote this piece negated to address the probability of making 6 consecutive winning trades in a row,although that is not too far fetched given I have personally accomplished that multiple times in my own trading and have experienced streaks as high as 14 consecutive winning trades. Finally, achieving “doubles” or a 100% return on a single trade is NOT easy. Obviously it can be done, especially with the leverage afforded using options, but again very unrealistic…. ESPECIALLY 6 times in a row.
Returning back to how I began this article – I was inspired to say the least at the thought taking $20,000 to over $1,000,000 in 6 trades but as you mature as a trader and reality sets in I decided to use my Excel skills to build a more realistic tool to manage ones expectations. This latest Excel tool still makes the assumption that your trades are consecutive winners but I have allowed the end user to define the following fields in an attempt to gain some realistic expectations;
1) User defined starting balance as opposed to a fixed starting balance such as the $20,000 I mentioned in the example
2) User defined Dollar value objective as opposed to just trying to reach the $1,000,000 plateau
3) User defined percentage return per trade as opposed to “doubting” or targeting a 100% return
Percentage and Trade Objectives Modeler
http://www.screencast.com/t/ZNBxtvJNGrg (Click to enlarge)
The yellow cells shown in the above screen shot denote the end user to define his or her own particulars or variables. Enter your own starting account balance – then use the spinners to define your percentage target and how much you realistically think you can achieve in on an individual trade by trade basis.
Below is a link to a 5 minute web tutorial showing how to use this “quick and dirty” Excel application. Finally, I am playing around with some other variables and will update you via my blog if I make some improvements to this latest tool.
http://www.screencast.com/t/baWIBl6Y7SG (Click to view)
If you would like a FREE copy of this latest Excel tool brought to you by Fulcrum Shift Trading , please feel free to send me an email and I will forward you a copy immediately.
Fulcrum Shift Trading
Tags: objectives modeling, probability, winning streak