Albert Einstein once said that compound interest was the eighth wonder of the
world those are understand it earn it and
those that don't pay it let's discuss
okay today we're going to talk to you about compound interest and how if it's
used correctly you can have a major positive effect on your trading and
indeed your equity growth now some of you will already be familiar with what
compound interest is some of you not but I'm pretty sure that most of you have
experienced the effects of compound interest in one shape form or another
and usually to the most detrimental of outcomes consider this if you've ever
had a credit card and fail to indeed forgotten to pay the balance at the end
of the month your credit card company is going to charge you interest on the
balance now this interest payment is added to your outstanding balance if you
forget or indeed fail to pay the new balance the following month you're going
to be charged interest on the new balance now this goes on month after
month until of course you settle your balance your debt is going to increase
every month as the bank is going to charge you interest on the interest and
this is basically known as compound interest you know Einstein called it the
eighth wonder of the world well indeed it is the eighth wonder of the world for
the banks in this case but not necessarily for you and I now in the
forex market we can make this 8th wonder of the world work for us as opposed to
against us and I'm going to show you exactly how to do that now it is quite
frankly the most efficient way to grow the account over sustained periods of
time so do make sure you listen up in this example we're going to look at a
betting account ok our betting account starts with $1000 float there's two
approaches we can either use the fixed lot approach or we can use the compound
aperture we'll discuss the different two types now so this is the fixed lot
approach each bet we're going to make we're gonna bet $100 okay now as luck
would have it we're gonna have five winning trades on the bounce we're very
lucky today so our first bet
bet $100 we win our count is now at $1,100 second bet $100 bet we win up to
$1,200 fair bet again 100 up to 13 for 14 and our fifth bet we have five
winning bets we're up to now $1,500 as I said we've been very very lucky that is
a gain of 50% okay nothing to be sniffed out of it now
let's look at the compound interest approach okay so for the sake of this
example we're gonna use the same numbers for the starting bet which in this case
will be 8 10% bet now I wouldn't recommend any of you start trading the
forex market putting 10% on each trade it is indeed the short fast way to the
poorhouse but in this example it makes sense for clarity so our first bet is
10% of the account it's $100 okay we win our count is now at $1,100 our second
bit takes 10% of the New Balance we're now betting a hundred and ten
dollars we win again our count has now grown to one thousand two hundred and
ten bucks again ten percent of this for our third bet takes us bet size of 121
bucks you see our betting or sides of the bets
is increasing as we are making more profitable trades that wins were up to
1331 10% of that means about 133 on this fourth bet goes to one four six four and
on our fifth betting the sequence of five winning bets our last bed is 146
dollars and we are winner our account now is up to 1610 which is a gain of 61%
so you can see by using the compound approach we've magnified our gains by an
extra 11% so we're making more money by using the compound approach and this is
basically what we do in our forex trading we're making our money work for
so profitable periods we're increasing our betting size and going with the
profitable periods that's great in profitable of times but what about the
losing times we all go through losing period in the forex market and indeed
any trading as you know what happens to our count in the drawdown or the losing
times well again it works first again to the positive effect we start off with
$1,000 this is our fixed lot approach first bet we lose $100 our count falls
to 900 second bet risk a hundred down to 800 third down a seven fourth down to
600 and our fifth bet five losing on the bounce
we're down 50% of the account maybe she came up if you're losing 50% in the
account after five trades that's the fixed lot approach now let's look at the
compound approach okay same example we're gonna use a 10% bet on our
starting balance so the first bet is going to be a $100.00 10% of $1100 we
lose our count force to 900 our second bit now is 10% of our standing balance
so we're betting just 90 bucks on the second bet our count falls to 810 okay
our third bet now is 10% of 81 810 is 81 we lose again down to 729 our fourth bet
10% of that is basically rounded to $73 we lose six five six and our fifth bet
in this cycle of fire of losing bets we're betting 66 we lose to that our
account is now down to five 490 which is a drop of 41% so you can see in a losing
period which as I say is inevitable your count is going to be protected by using
the compound approach as opposed to using the fixed lot approach we're
losing less by losing the compound approach most people when they come into
the forex markets they don't even look at this compound approach they just go
straight in betting a lot size and slowly but surely they'll
bleed their account away but the experienced trainers people that know
how to grow an account over sustained periods of time will always be looking
at the compound effect because they know you have your winning periods you know
you're gonna have you're losing periods you want your money to work better for
you in the winning periods and protect you in the losing periods let me know if
this makes sense to you send me a comments below let me know if you've
been trading with a fixed lot of perks you've bled away accounts let me know
you've used the compound approach and it's actually helped you in your trading
I get back to all your comments personally as well so I do want to hear
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well so make sure you don't miss the next video in my series best of luck
with the trading see you soon