As known, if you do not have psychic abilities, the potential profit in the game on the stock exchange is equal to the potential loss in the broad sense of this expression. For example, if you have a habit of earning a year 50%, then you need to be prepared for a 50 percent loss. If you are used to making money 100% per year and more, you need to be ready for a complete drain of capital. There are, certainly, deviations from this norm — some declare on 10000% guaranteed per annum from 1% planned drawdown, but we will not consider them here.
Based on the above, consider a hypothetical example, when trader с начальным капиталом 100 000 traded for three years and earned + XX% for the first two years, and in the third year received the same amount of loss -XX%. At first glance, it seems that in the first two profitable years, he provided himself with a margin of safety.….. but let's see what happens:
100 000 + 5% + 5% – 5% = 104 737 (earned in three years 4,73%)
100 000 + 10% + 10% – 10% = 108 900 (8,90%)
100 000 + 20% + 20% – 20% = 115 200 (15,20%)
100 000 + 30% + 30% – 30% = 118 300 (18,30%)
100 000 + 35% + 35% – 35% = 118 462 (18,46%) — PERFECT OPTION !!!
100 000 + 40% + 40% – 40% = 117 600 (17,60%)
100 000 + 50% + 50% – 50% = 112 500 (12,50%)
100 000 + 60% + 60% – 60% = 102 400 (2,40%)
………….
100 000 + 100% + 100% -100% = 000 000 (0,00%)
From this it is clear that it is most profitable to earn 35% per annum. BUT 50% annual is worse than 20%. So you better not chase high interest rates — the quieter you go, the further you'll get.
If anyone remembers, in previous posts, when I posted the statement with 2009 of the year, smart people counted 33% per annum. It is not without reason :)
