Do you know what makes an avalanche so powerful? A small piece of snow becomes an avalanche by first becoming a snowball. The force that is needed to get that small piece of snow into an avalanche is intense. But, once the snowball continues to gain momentum and add mass, it becomes exponentially larger and more powerful. The same can be said for compound interest.
Just as the snowball compounds and grows, so can a trading portfolio (and overall wealth). Much like the snowball, the work that is needed to be done in the beginning stages of portfolio growth requires a high level of intensity and is ultimately tiresome. The smaller portfolio gains that are experienced in the early stages of a trader’s career (part-time or full-time) generally are not valued due to their relatively low total dollar amount; as well as the sheer amount of challenges and obstacles that traders face very early in their career. For this reason, it is always more important to focus on percentage gained, rather than dollar amount- Percentage gained has more relevance both in trading and in overall portfolio growth.
This is where compound interest comes in. The great Albert Einstein once said “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.” Put simply, compound interest is when your interest earns interest. We can apply this concept to our trading.
The “Green Streak” trading challenge is very simple: How many consecutive days in a row can you have a profitable day? By attempting this challenge and just focusing on textbook, high-odds trading setups, traders can improve their discipline and begin to exponentially compound their trading portfolio. By shifting their focus to consistent, repeatable gains and ending the day green (profitable), traders will shy away from the profit mindset (a bad trading habit discussed in this article).
Ultimately this challenge will have lasting positive implications. The effects of this small habit compounds over time. If you can end up with just 1% gain each day, you will end up with results that are nearly 37 times better after a year! By applying the idea behind compound interest to trading, traders can achieve an outstanding growth potential for a trading portfolio. Are you up for the challenge? How many consecutive days in a row can you remain profitable? Comments below are welcome!