The Edge
How long will it take to turn $5,000 into $100,000?
Introduction
It's no secret how winning traders win and take the profits from
everyone else. The have an edge and they exploit that edge day in
and day out. It's a number game. If you buy a can of beans for 30
cents and sell it for 40 cents you make a 10 cent profit. Do that
10,000,000 times and you've made $1,000,000. Trading is the same.
If you make (on average) $50 for each trade you place then you
execute 20,000 trades and you've made $1,000,000. Simple isn't
it?
This article explores how long it would take you to take a
$5,000 account and turn it into a $100,000 trading the ES
contract.
Have a look at the six scenarios in the table below: (download
the spreadsheet from here: The Edge)
| Scenario |
1 |
2 |
3 |
4 |
5 |
6 |
| Average Win Points |
2.50 |
1.50 |
0.50 |
2.50 |
2.50 |
2.50 |
| Average Loss Points |
2.00 |
2.00 |
2.00 |
1.50 |
2.40 |
2.50 |
| Cost per trade |
0.10 |
0.10 |
0.10 |
0.10 |
0.10 |
0.10 |
| Average P/L per trade |
0.40 |
-0.60
|
-1.60
|
0.90 |
0.00 |
-0.10
|
|
|
|
|
|
|
|
| Number of trades |
100 |
100 |
100 |
50 |
100 |
100 |
| Expected Profit (in points) |
40.00 |
-60.00
|
-160.00
|
45.00 |
0.00 |
-10.00
|
| Num contracts traded |
2 |
2 |
4 |
6 |
2 |
2 |
| Value per contract |
$50 |
$50 |
$50 |
$50 |
$50 |
$50 |
| Total expected profit |
$4,000 |
-$6,000
|
-$32,000
|
$13,500 |
$0 |
-$1,000
|
Those who trade the ES will see that I've based the calculations
here on the emini S&P futures contract. Take a look at the
table and at scenario 1. The other scenarios use the same
calculations but are based on different figures.
Under scenario 1 our average winning trade gives us 2.5 points
and the average loosing trade is 2 points and our commissions are
$5 per round trip which costs us 0.1 points per trade. Given those
figures we end up with an average expected return of 0.40 points
per trade.
Now it's just a numbers game. If you place 100 trades then you
would expect to receive a net 40 points (after commissions) and
trading at 2 contracts per trade and a contract value of $50 it
means that you will make $4,000 on average for every 100 trades
that you execute.
If, as in scenario 4, you're making on average 0.9 points per
trade then after 50 trades you will have netted $13,500. Scenario 5
shows that even if you do have a slight edge it's still not good
enough because commissions will take you down to breakeven in that
situation.
Download the spreadsheet (The Edge) and stick in your
own figures and see how much money you expect to make every 100 or
50 trades.
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