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How the Power of Compounding can get you to your Trading Goals


Author: Shanda Matieshin


In todays post we are going to focus on a topic that is near and dear to my heart. Many people, not just traders simply do not understand the power of the principle we are going to share with you today. If you fully grasp and understand this topic you will be mind blown.

Compounding can literally change your life. It has been said to be the 8th wonder of the world. Running with this concept will allow your mind to open up to the possibilities that are available to you through trading and investing. 

Sometimes when we begin our trading careers we are short sighted. We don’t see the bigger picture and how trading can literally change our lives. As new traders we often focus on achieving huge returns in the first few months of trading and don’t quite know how small gains achieved over a lifetime can impact us. Large gains are great such as achieving 10-20% per month. This is definitely possible but I don’t want you to get down on yourself if you are consistently achieving 2-3% per month as well.  Because achieving these returns consistently can also have a HUGE impact on your trading portfolio over the long term.

When you consider the fact that 95% of traders and investors fail to make money… you should be ecstatic about the fact that you are making a consistent 2-3% per month.

When we understand compound interest we develop a long-term perspective when it comes to trading. We understand that minimal drawdowns in the short term are okay as we see the long-term picture.  This brings me to the two most important topics I want to discuss today.

Compound interest teaches traders two very important things

1.     The Value of Time

2.     Patience 

To see the tremendous results of compound interest we need TIME. Really to see the fruits of our labor in anything in life we need time. It takes TIME to develop something great. Trading is no different.

With compound interest you need TIME on your side. Because the more time you have the greater your compounded returns will be. So my advice… start compounding NOW. You have nothing to lose!

Take a look at the example below. You can see how a simple $10,000 invested at the different rates of return will compound based on different time periods. 

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 Now you may be thinking to yourself… these are small rates of return! Cant I expect more from actively trading the forex markets?

The simple answer is YES! I am showing you the impact of what most people would consider as normal to average returns and the impact it would have on your investment portfolio. Now just think if you were making double 16%? What would the results of a portfolio compounded over 20 years at 32% per annum amount to?

After a simple calculation in a compound interest calculator you would find that a small $10,000 investment compounded at 32% per year for 10 years would result in a final balance of $235,253.13. How crazy is that! Look at the chart below to see the figures.

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So what is my advice for you moving forward? Well this brings me to my second main point and that is…

PATIENCE

You must have patience in the process and trust that time and the power of compounding are on your side. What does it take to develop patience? Discipline.  You must be disciplined to stick with your trading plan and develop that long-term vision. You will not reach these figures by investing for only 1 year… even 2, 3, 4 or 5 years! You must stick it out! The power of compounding only takes form within the last couple years. This is when we see the big returns. After all, when you think about it… 32% return on a balance of $235,253.13 is a much larger number than 32% on $13,200 which is the investment balance in year 2. This is why in trading you must persevere through the difficult times. If you gave up after 1 year of what you considered “ok” trading results… you are missing out on a lifetime of possible gains.

So stick it out! Realize the power of compounding and how these seemingly “small” returns can have a HUGE impact on your trading results in the long term.  

It is the impact of those long term results and how in the first few years it might seem like you are not achieving anything but when you wait it out you will see that the last few years are where the biggest gains are made.

To display this in a visual form… take a look at the photo below.

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In the first 5 or so years you can see that your gains and interest earned are nothing to brag about. This is when your patience is tested. Do you have the discipline to stick it out and keep your long-term vision at the forefront of your mind? After taking a look at this graph I hope you do! You can see the power of a small investment and making achievable 3% per month returns and how this can impact your life! In this example you only invested $22,000 and you came out with over $400,000 in gains! This is the power of compounding interest and making consistent and regular deposits into your savings and trading accounts!

Now lets also take a look and see how making regular contributions will impact your portfolio value at the end of the same time period. It you look at the revised chart below you will see the impacts of NOT making regular savings contributions into your investment account.

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You can see that you ended up with about $100,000 less than if you simple added only $100 to your trading account every month… so my advice? 

Get in the habit of saving and making regular contributions into your trading and investing account. Just by looking at these graphs you can see the enormous impact that this simple habit can have on your investment portfolio over time. Now think if you were to add even more money into your account every month? Take the time to think about what a reasonable amount of money is for you to be able to save every month.

Then setup regular contributions in that amount every month and have the discipline to stick to it. Those who have discipline are the ones that will be rewarded. If you find yourself falling short keep this graph in the forefront of your mind so that you are reminded of the powerful impact that one decision can make in your life. I hope that you make that decision today. Your future self will thank you!

At DARA we have developed an amazing tool to assist you with measuring your trading progress. It is journaling software designed to help you monitor your results and ensure that you are on track for your goals! If you want FREE access to this software click the button below! Journaling DARA will ensure that you are on track to achieve the desired life you want through trading and investing in the forex markets!



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Why you Should not be Looking at Charts 24/7


Author: Shanda Biggs


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Trading is an interesting profession. I don’t think I know of any other skillset that requires so much mental focus and strength. Now being successful in any endeavor requires you to put in similar amounts of time and effort. But trading is different in a couple different ways. The most important being your mindset and psychology. 

The single most important thing that will determine your trading success is your psychology and your ability to manage your emotions. You will just not succeed unless you are able to numb yourself to what is happening in the markets.

I wrote this blog post to help you new traders or even seasoned traders see why it is not a great idea to be on your charts all waking hours of the day. It is important for your mind to take breaks. If you have your consistent focus on one thing 24/7 you are prone to burn out. Your mind needs breaks in order to bring clarity and order.

When you take breaks, you give your mind a mental break and this gives it room and space to open up for new ideas. Order flows into your mind when you release what you are focusing on just for a moment and bring your attention to something else. Its almost like you forget what you were working on and bring your focus elsewhere. Being in the present moment. This is powerful because it opens your mind up to new ideas.

Have you ever found that thinking so hard about something actually stifles your ability to think clearly at all? Take for instance trying to write a research report. When you think so hard about what you should write your mind comes up with no ideas. But when you are out for a walk not even thinking about the report you get a million great ideas to begin writing about! The same phenomenon can be applied to trading and mainly when you are analyzing charts which brings me to my main point of discussion for today.

Over Analysis

Over analyzing charts is one way to sabotage your trading success. Over analysis most commonly occurs when traders do their initial analysis but then they go back and “review” what they have seen on the charts. By looking at the charts over and over again they begin to see and imagine patterns and price action that is against what their initial analysis pointed to. They then develop doubt in their mind about what they initially saw on the charts.

I like to call this analysis paralysis. Maybe you have heard of this term. It is very real in the trading world and stumps a lot of traders. The trader gets so many conflicting ideas about what the chart is telling them that they literally cannot develop a bullish or bearish bias on the pair. 

How does this happen? It happens when a trader looks at a chart but does not exactly know what they are looking for. They don’t know how to dissect the chart and break it down into a story that the price action is telling them. Instead they look at various indicators, support and resistance and possibly trendlines or other technical tools and find that they all point in different directions. Indeed, this can be very confusing for a new trader and a seasoned trader!

What I have found to help me not over analyze the charts is having a crystal clear strategy so that I know exactly how I analyze charts and what types of setups I will be looking for. Then once I know exactly what I’m looking for I glance at a chart quickly to see if there is a possible setup. I don’t look at the chart for to long because this is when over analysis can kick in… when you stare at the chart for to long!

You may know what I’m talking about when I say your mind starts to develop patterns in the price action that you just didn’t see a few seconds ago! What I always like to say and implement into my trading is that if you look at a chart and do not see a possible trade within 30 seconds of looking at the chart then there probably is no setup.

Why? Because clear setups do not have to be dissected. They are so obvious that they just jump right out at you! Of course you must dig further to see if the setup meets all of your trading plans criteria but at the initial first glance you should be able to see if there is a valid trade on the chart.

I have implemented this strategy into my trading routine and found it to help immensely with over trading and emotional trading. I do not get emotional when trying to find a setup by making up possible price scenarios in my head.

By spending a little less time actually finding trades on the charts I am able to get back to the real reason I started trading in the first place. That is for freedom! I now have more time to analyze, backtest and review my strategy. Which are all vital components to trading success and growth.  Not being on the charts 24/7 allows you to cleanse your mind and come to the charts on the next trading session with a focused and clarified mindset. This is absolutely essential. So rather than analyzing possible setups 24/7 why not go out and enjoy some time with your family? Remember the reason you began trading in the first place! I guarantee you that by taking the time away from the charts between your trading sessions you will come to the charts when you are supposed to be trading with a clear and focused mindset!

At DARA trade we actually have a tool to help you NOT have to look at charts 24/7. When the perfect setups present themselves according to predetermined criteria you get an alert on that particular currency pair! DARA notifies you once your rules are met and ensures that you are only taking the highest quality setups! How awesome is that? If you want to see what DARA is all about click the button below to learn more and become a member. From here you can download our FREE software and begin your trading journey with DARA as your trusted sidekick.

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