“It is the greatest mathematical discovery of all time”

Let’s apply the principle of compound interest to your forex training.  To do so, we need to first define “pip”… a highly touted phrase in the forex trading world.

A pip is simply a small unit of forex measurement and in almost all Forex training courses people begin with daily targets of anywhere from 20 to 50 pips a day.  This is excessive and typically leads to greed, over exposure and needless risk.

My preference is to set a daily goal of 4 pips… conservative, safe and still quite profitable.   For example,

Let’s say that 4 pips a day gives you around a 1% return on investment (ROI)… that’s 1% return on investment per day.

With a 20 trading-day month, you get 20% per month. If there are 240 trading years each year, you will receive a massive 240% return… right?

Actually, it’s a helluva lot more than that.  Let’s take a look at how this strategy can truly explode your ROI.

On Day One, one percent is 1% on your ORIGINAL investment.  On Day Two, another 1% is calculating on the compounded amount from Day One.

On each day of the 240 days, you are making a one percent return on the
accumulating total; hence, compounded return versus simple return.

So here are the actual figures for monthly ROI on your original investment based on a NET 4 pips per day, 5 days per week – if you took nothing out.

Month 1 . . . . . 19.92%
Month 2 . . . . . 45.44%
Month 3 . . . . . 76.64%
Month 4 . . . . . 114.72%
Month 5 . . . . . 161.20%
Month 6 . . . . . 217.76%
Month 7 . . . . . 286.8%
Month 8 . . . . . 371.04%
Month 9 . . . . . 473.84%
Month 10 . . . . 599.28%
Month 11 . . . . 752.40%
Month 12 . . . . 939.12%

Moral of the story… don’t be greedy.  Just set up your daily activity to get 4 pips each trading day.  Conservative and doable!

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The number of brokers offering forex trades has increased dramatically over the last several years.  And, keep in mind that brokers are on the other (i.e. competitive) side of your trades.

You must take a more educated approach to trading foreign currencies… otherwise, you will undoubtedly lose your shirt.

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