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Compounding Trend Following Trading

“Nothing is unknown, just temporarily not understood.”
Captain James T. Kirk

There is only one way to profit in the market. You must apply a systematic approach over time, compounding as you go. Don’t be so naive to expect you will get rich overnight. Remind yourself that patience is a virtue when it comes to trend following. You must have the discipline to work within the structure of your system. For example, if you can manage to make 50% a year in your trading, you can grow an initial $20,000 account to over $616,000 in just seven years. Trust that time and the power of compounding will take over if you stick with your system. You think 50% is too unrealistic for you? Do the math again using 25%. In other words, compounding is essential.

Hypothetical investment of $20,000 (annual rates of return compounded)

  30% 40% 50%
Year 1
$26,897 $29,642 $32,641
Year 2
$36,174 $43,933 $53,274
Year 3
$48,650 $65,115 $86,949
Year 4
$65,429 $96,509 $141,909
Year 5
$87,995 $143,039 $231,609
Year 6
$118,344 $212,002 $378,008
Year 7
$159,160 $314,214 $616,944

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