Talking about goals in trading is something as broad as it is important, however, let's take a brief look at the subject.
Just as in life we must have clear objectives of what we want to do and achieve trading could not be less. But defining clear objectives in trading goes far beyond general ideas that should go beyond the simple fact of saying "I want to be rich in the shortest possible time", because that is the perfect recipe for failure in trading.
Because although we all want to become millionaires through trading, what we must have in this regard are clear ideas of what we want to achieve at a specific level, and clear ideas of what we want to do as we achieve specific objectives; and this requires a strategy, and a lot of knowledge on the matter.
An example of a specific defined objective would be that I select, for example, some cryptocurrency (say HIVE) and project it in the short term with a 3% increase. Ok, in this case I would be a scalper trader, or at most, an intraday trader, but the point is that this would be a projection based on a time frame that would range from a few hours to a couple of days.
As I said, that would be a specific objective, and beware, I repeat, I am speaking only as an example and only referring to trading; because if we talk about investments, there HIVE is even more promising in real life and without doing too much analysis.
The thing is, going back to the example, let's say the projection is correct, then we hit the specific target, so HIVE was up 3% in, say, 5 hours; so what would follow be there? What could be a valid general objective in this sense?
Well, as I think I have already implied, the general objective must be raised even before the specific objective, or it must be seen at least as early as the specific objective, because it is the next step of what we must do when the projection comes true, if it is correct.
But in the example above, a general objective could be, after taking profits, to do a compound interest process, whereby, in the next trade that we make, we put more money at stake than we put in the previous trade.
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Having defined objectives, it is important to know that compound interest is a great force of nature when it comes to business.
For the few who don't know what I'm talking about, I'll clarify briefly; It turns out that there are two types of interest that we can use in our trading (and even in investments), and they are simple interest, and compound interest.
Simple interest is basically taking a percentage of something and always doing trades based on the same initial amount, because we just take interest as profit and that's it. On the other hand, compound interest is different and much more powerful in terms of wealth creation, because it consists of taking the profit and reinvesting it, so that every time we are successful in our operations in the market, the balance earned is added to the balance to reinvest, and therefore, the profits will be greater and greater.
Although it may seem silly, if we do the calculations through a spreadsheet, we will realize that it is not silly, and that it makes all the sense in the world.
In fact, according to my calculations, a person who only has, for example, $50 to invest, and who only earns 1% per trade, would obtain after 30 trades (applying compound interest), a total gross of $67, which is which would leave you with $17.39 in profit.
It may not sound like much, but when you compare it to what banks give you today for having money tied up in a saving account, it's much more profitable even if we left the math there.
But let's not leave the calculations there; that is, let's analyze what would happen if from $67 (that is, from $50+$17.39) we made 30 more operations with the same percentage of success (1%) and applying compound interest again operation after operation. Well, it turns out that after 30 operations, the gross amount that we would obtain would be $90.83, which would leave us with a net profit of $23.44.
Impressive, right? Well, maybe at this point it still doesn't seem like it, but let's do the same process, let's start now at $90.83 and after 30 operations applying compound interest at only 1% interest, we would have a gross total of $122.43 with a net profit of $31.60 .
The truth is that the amounts are getting bigger and bigger as we go through the operations applying compound interest, and there is no doubt that it is probably the easiest way to achieve economic wealth; but still, we must have a lot Be careful when applying it and know everything that it implies at a deep level.
Because we have to understand that in trading, no one, no matter how expert an analyst they may be, can get 100% of their trades right in the market, so that is an important point to keep in mind. The other issue is that compound interest is like something that comes to life, and as we earn money, we must continue to be very clear about the objective we have; in order not to lose focus when we already feel that we have a good amount of money earned. .
But, at least from my point of view, I have no doubt that compound interest is the best way to achieve our economic goals over time. The truth is that I did the calculations through a spreadsheet that I programmed or automated and the result is impressive. Let's suppose that each operation that we carry out is made only 1 time a day, that is, suppose that we make only 1 operation per day, and that, hypothetically speaking, said operation is won on each occasion; that would give us a total of 30 operations per month.
Well, starting at $50 and with as little as 1% interest compounded day after day (which percentage is quite easy to achieve in trading by the way); after 2 years (or 720 days), we would be able to achieve $64618.84.
Not bad, right? Considering that we start from having only $50 and earning only 1% interest. And if it seems to you that 2 years is too long to achieve something like that; take into account that for any business you start in the real world it would take you exactly the same time (approximately 2 years or more) to start seeing significant profits in your activity or business.
Now, $64618.84 is not a fortune, although it is appreciable, but it would be a very good base from which to start investing in other businesses, expanding your vision of progress to unsuspected limits.
That's the really fascinating thing about compound interest, that the sky is the limit.
What do you think about the topic discussed? Please comment.
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@piensocrates