My two cents to any newbie trader who thinks that day trading is just taking a calculator and multiplying the initial investment with powers of the daily returns.
That is, if the trader made a profit of 1% the first day with a capital of 10000; the trader assumes that this will be the scenario every day. So they think they can multiply the profits exponentially, leading them to calculate future profits like this:
Profit on day 1: 10000x.01=100
With leverage of 10x. Profit =10000x0.1=1000
Capital=10000+1000=11000
The profit at the end of n trading days each with a minimum of 1% profit=
10000x1.1x1.1x1.1x1.1x...(n times)
or 10000 x1.1 to the power of n.
At the end of 30 trading days=10000 x 1.1 to the power of 30=1,74,494.02
Traders who fall to this fallacy, will learn it the hard way.
If trading were that simple, you can give a calculator to a five year old and he will do this calculation.
Believe me, people have actually posted their expected profits (Crores in weeks) like this on this forum!
The truth seems to be more like this:
Trading is a pursuit of knowledge, profits are a by product.
That is, if the trader made a profit of 1% the first day with a capital of 10000; the trader assumes that this will be the scenario every day. So they think they can multiply the profits exponentially, leading them to calculate future profits like this:
Profit on day 1: 10000x.01=100
With leverage of 10x. Profit =10000x0.1=1000
Capital=10000+1000=11000
The profit at the end of n trading days each with a minimum of 1% profit=
10000x1.1x1.1x1.1x1.1x...(n times)
or 10000 x1.1 to the power of n.
At the end of 30 trading days=10000 x 1.1 to the power of 30=1,74,494.02
Traders who fall to this fallacy, will learn it the hard way.
If trading were that simple, you can give a calculator to a five year old and he will do this calculation.
Believe me, people have actually posted their expected profits (Crores in weeks) like this on this forum!
The truth seems to be more like this:
Trading is a pursuit of knowledge, profits are a by product.