One of the reasons why many retail forex traders lose money in the market is because they do not trade like the successful institutional traders. Institutional traders have many habits which put them on top of the trading food chain. One of their habits is that they learn to save for the rainy day.. in another sense than what the idiomatic expression actually means. It means that one of the ways that they trade is to slowly but surely compound whatever money they have made in the market along with their original capital, into very large positions in the market over a long period of time. This form of trading is called long term compounded trading.

There are some of you retail traders who are reading this article that have been in the market for at least 7 years with nothing to show for it except mini-successes or downright failures. For such traders, maybe it is time to take a break and change the way that you trade. For some of you, a long term approach may be the way to go and that is what will be demonstrated in this piece.

The profit challenge that we have created for the trader reading this is to use seed capital of $2000 and the trading methodology to be provided to generate a sum of $306,300 in three years of trading, or if the trader is up to it, $1.6 million after four years of trading. If this project is commenced right away, that means that by July 2017, the trader should be worth at least $1.6 million. This is enough money to start off businesses that will provide several streams of income to guarantee a life-time of stress-free financial freedom.

What does this approach entail? It entails the deployment of the following strategies in the market:

1. Starting with a capital of $2000.
2. Trading three days a week during the three to four years that this project will be run.
3. Aiming for a maximum return of 15% in a month. If 15% is seen to be too ambitious for the month in question, adjustments will be made.
4. Aim to make at least $306,300 in three years or $1.6 million in four years. Whichever one appeals to you is what you can go for.
5. A trade plan on Excel.

Trading Capital

Trading capital of $2000 is something that traders can get access to if they are serious about it. There are forex companies that award forex bonuses of up to 100%. Due to the fact that the trading activity on this account will be long term in nature and no withdrawals will be made on the account for at least three years (spanning 468 to 624 trading days), there will be no problems with withdrawals being tied to bonuses as is obtainable in the terms and conditions that come with bonus awards.

In that time frame, the trader would have generated the required trade volume to cover the bonus and the bonus amount would also have paled in significance to what the trader would have made. In essence, the trader can get some money and look for a forex company that will be able to provide some form of bonus to support the capital. If it is possible for the trader to come up with the entire trading capital, this can also work very well for such a trader.

Trading Three Days in the Week

An independent forex service provider Babypips has done some research on when the forex market experiences the greatest market activity. In this research, it was found that Tuesdays, Wednesdays and Thursdays were the most actively traded market days. It is not hard to see why this is the case. On Monday, half the world is still asleep half of that trading day. By Friday, part of the trading world would have closed shop for the weekend. On these two days therefore, trading volume is thin. Thin volumes mean there isn’t much volatility, and there is no sense in a trader taking unnecessary risks in trying to pick money that isn’t truly available for the picking.

For this strategy therefore, we will only stick to the three days when the markets are fully alive and kicking, and that is on Tuesdays, Wednesdays and Thursdays.

15% Returns Per Month

This is where many forex traders end up having loads of problems. It seems illogical to aim for just 15%. Why not anything from 40% to 60%? And if we have “robots” out there which are supposed to be forex profit harvesters on autopilot as touted by some vendors, why don’t we get it on with those?

The answer is simple. We are not in this for quick, hefty gains. Trying to make so much money in such a short time goes against the grain of this compounding strategy. The strategy here is to use as minimal risk as possible to achieve what looks impossible. 15% a month means the trader who starts with $2000 in the first month will be aiming to make $300 over 12 trading days in the first month (3 days per week and 4 weeks in a month).

This boils down to about $25 a day for the first month. A trader who aims for $25 a day can effectively do that in 2 trades of $12.5 each or even 1 trade using a trade volume of 0.1 lots. All it takes is to get one great trade opportunity per day. Those who are swing traders can even pick out one great trade opportunity on the daily chart which can be held for up to five days or more, and grind out 300 pips in profit on a 1 mini-lot trade. That would not only produce the trade target for the first month, but would serve as a template for trade setups in subsequent months.

If you have been following this blog and all the articles on trading strategies that we have been dishing out, it will not be difficult to pick out a good trading strategy or a combination of strategies that can be used to achieve the profit targets for the month set out for this strategy.

$306,300 in 3 Years: How Possible is This?

So how possible is it to compound $2,000 into $306,300 in three years or 1.6 million in four years? It is possible using what Albert Einstein called the 8th wonder of the modern world: compound interest.

The principle of compound interest means that a trader can use a certain sum of money, make money on it, and use the original capital AND the profit to invest in the same vehicle at the same rate of return in order to keep increasing the amount as time passes by. The higher the amounts derived and invested, the more that can be put in that investment vehicle at the same rate of return, not higher and not lower.

So for our strategy, we will aim to compound $2,000 into a higher amount every month. As the months go by, the value of the 15% return that the trader makes in a month increases, and the value of the lot sizes placed in the trades will also increase. So while 15% will be worth just $300 in the first month, it will be worth more than $30,000 a month by the time the investment period is about to end. This is one of the reasons why compound interest is regarded as the greatest wonder of the investment age.

The strategy is simple. The trader achieves his 15% monthly target of $300 for the first month. The next month starts with a capital of $2,300. If he does well, his new profit will be $345 and new capital for the next month will be $2,645. If the trader sticks to the plan as follows:

• Make 15% returns every month.
• Add this to the old capital to get new capital for the month.
• Use the new capital with the same percentage market exposure (which translates into a slightly higher amount though, but the same percentage) to make the new equivalent of 15%.
• If this is done over three years, with the same rate of success, then the trader will eventually walk away with $306,300. If the trader can push it into the fourth year, then we are looking at $1.6 million!

Some traders may feel more comfortable using a 10% return rate. Some may be able to get their capital up to $5,000 and use it as a start off point, thus reducing the time that it will take to produce the desired profit target, or ramp up the amount of money that would accrue after four years of consistent results.

Going Forward

It is a very essential component of this strategy to make sure that you select the right broker for this project. Any such broker chosen to be the harbinger of all traded funds must be located in a jurisdiction where regulation is very tight. Such a broker must be shown to be in good financial state. While it may not be necessary to get an ECN broker because slippage and other factors seen with market makers will not be an issue as a result of the ultra-conservative nature of our trades, you need to be sure that the broker will not suddenly come up with all manner of reasons not to pay you your money when it must have achieved the million dollar status.

Take all necessary precautions to protect yourself so that all your efforts would not have been in vain at the final analysis.