Ok so I have come up with this really silly idea but if it works then it could potentially become an amazing idea. I was looking at Einsteins theory of compound interest you know the one where £1 turns to £2, 2 to 4, 4 to 8 and so on and so forth and thought could this principle be used effectively in fx market? obviously it would be used by scalping but do you think that trading 30 trades in one could possibly make a large amount of profit in a small amount of time and also could this theory be adapted to an expert advisor whereby the trade doubles every winning trade?
Not the first, not the last to point this out.
You’re setting yourself up for failure IMO focusing on this aspect of trading.
Process first, then the results.
The horse goes in front of the cart.
You are asking either:
A: If I increased my position size by 30 times would I make more money?
or
B: If I put on 30 simultaneous trades would I make more money?
Answer to both is the same: your risk and your potential profit will be increased 30 times. Just think of it like eating 30 hits of blotter without knowing if there is any LSD on them or how much. It would have a high potential to be a bad trip.
Your mention of the compounding effect of interest brings to point the subject of PSILOCYBIN.
Imagine if you put on higher and higher position sizes with each subsequent loss in a series of losing trades. Such a pattern is called a “martingale” algorithm.
A martingale strategy looses exponentially larger percentages of the account value with each subsequent loss. Worse: it wins exponentially smaller percentages of the account value with each subsequent win. Old traders call this sort of thing “doubling down” or “averaging losers”.
If you really want to nerd out on this subject, check out Van Tharp’s book about position sizing.
An antimartingale position sizing algorithm will do just the opposite of a martingale algorithm.
An arbitrager on acid will expose his/her account to smaller and smaller percentages of risk as the account balance decreases through subsequent losing trades to asymptotically rather than exponentially approach zero. He/she will also expose his/her account to greater and greater percentages of risk as the account balance increases through subsequent winning trades to exponentially rather than asymptotically approach infinity.
I don’t know why scalping comes obvious in this. It is not obvious to me. But wtf do I know? I am just an arbitrager on acid.
The only way I have seen compounding being put to good use in FX is by adding positions to existing open winning positions.
One of the traders I follow does this well - he opens up a trade - if it moves into profit he brings his stop to breakeven, then he opens another trade, and if that moves into profit he brings that stop to breakeven, then opens up another, and so on.
The risk stays the same, but the amount of positions increases, and that is the compounding effect you are looking for.
Yup.
Yup.
Yup.
I would add only one thing to the comments above:
Whoever came up with the “compound interest” quote you referred to, it wasn’t Einstein.
I was disappointed to learn that fact several years ago — post.
And, no doubt, you’re disappointed to learn it now. Sorry about that.
Lol typical Clint ruining the fun. 
Thank you for the replies I am still a little bemused as my idea doesn’t involve increasing
the tp size or putting on 30 simultaneous trades the way it would work is to put on a single trade
at say £0.10 then when that hits 5 pips tp the trade would be £0.20 then tp then £0.40, £0.80, £1.60
and so on until 20 to 30 trades have been completed and then following the same principle each day
starting at £0.10 the eventual end of day profit should be £53687091.20 even at 20 trades a day it should generate
a profit of £52428.80 would this be possible after looking at the trend and any other technical analysis?
Does not compute. Take me step by step through what you are planning.
- You put on a trade of a microlot.
- The market price hits 5 pips profit.
3…???
Ok so trade 1: £0.10 tp at 5 pips trade 2: £0.20 tp at 5 pips trade 3: £0.40 tp at pips every trade is 5 pip tp so trade 4: £0.80 trade 5: £1.60 trade 6: £3.20 trade 7: £6.40 then doubling every trade £12.80, £25.60, £51.20, £102.40, £204.80, £409.60, £819.20, £1638.40, £3276.80, £6553.60, £13107.20, £26214.40, and on the 20th trade it should be able to have £52428.80 that is the 20 trade strategy which should be a 100 pip a day plan
So if I have this right:
- Put on 1 mic.
- Take profit at 5 pips.
- Put on 2 mics.
- Take profit at 5 pips.
- Put on 4 mics… etc.
What happens if you get to 4 mics and the price goes to a 5 pip loss? Then 10? 15? Where do you get out on a losing trade and once you are out then what do you do?
compounding is a good way to increase your trading account capital if you are not interested in depositing from your pocket after your first investment. But my recommendation is that you should withdraw some amount from your profits and let the rest, rest in your trading account.
this is where i was looking at having four or five pairs open and going for the trend as i have seen so many time the saying goes that the trend is your friend so effectively watching the trend on several pairs and checking tech analysis and several tf would this possibly work on scaslping at a 5 pip profit per trade?
Right, you would have four mics on. But if you lose 5 pips on 4 mics you have lost all the gains on the first two trades plus 5 pips on 1 mic. Then what?
this is where I kind of get stuck cause the way I was thinking was if the market is trending in a certain direction and every piece of information correlated such as technical analysis and checking several time frames shows this trend to be true would this mean tat 50 to 150 pips could be possible over an entire day?
Price movements throughout the day are not trends. They are noise. If you put on trades with 5-pip targets and 5 pip stops you will win 50% of the time and lose more than you win because of the spread and fees. When you win you will bag 5 pips. When you lose you will give up 6-7 pips. No position sizing algorithm can overcome this problem. You must have some edge, some way to win more than you lose even if you were trading the same position size every trade. Only then will changes in position sizes increase profits as the account grows.
so the only solution is long term trading rather than scalping to increase profits exponentially but can the same method of compounding price be used or is this just a pipe dream?
I think for the most part it worked for Ben Franklin it should work for me.
The key is in consistency and not taking out your monthly equity increase.
Occasionally on a dull day I play with the compound interest calculator.
Suppose you only start with 10,000 to trade with. You open just 3 trades per day and you trade on 250 days of the year. You use a simple strategy which has a win rate of only 60%. You risk only 2% of your capital per trade and you run all trades to either the stop-loss or the profit target: the profit target is only 3% of capital (so your r:r is only 1:1.5).
I hope none of this sounds too ambitious. There’s no point assuming a r:r of 1:5 and a win rate of 90% and so on, it just doesn’t happen.
The question is, will you ever be a millionaire? And if you will, will it take you more than an average lifetime?
Tommor, I think 2% per trade with three trades at a time is to much risk. Rather 1% per trade and no more than 3 trades at a time is 3% of the account. While a 60% win rate maybe a bit low I would go with 70% on the low side. However no matter the scenario of wins the losers need to be factored in, not the ratio but the size of the losers.
Keeping it simple most traders either can not or will not allow the equity to continually grow with the earnings. Failing to do so modifies the compound interest formula radically.