Last Update: August 2021

≈ A popular tool for traders ≈

One of the most important concepts in trading is understood through compounding your gains. When you make money from a trade, what do you do with it? Most people leave it in their trading account, as they watch it grow. As your account grows, if you sustain the same percentage returns, then your gains will get bigger over time as your account gets bigger over time.

Some traders try to go for big gains through aggressive strategies. Others are content with conservative returns on higher probability strategies. Which type of trader are you? Do you want to trade aggressively or conservatively? Do not make this decision based on how much money you have or how much return you think you need right now from your trading.

The average annual return in the stock market over the last 100 years is roughly 8% per year. The average return in the past 40 years is 10% per year. If you add dividend payments, covered call returns and conservative cash flow trading to your trading plan you can increase those returns through your execution as a trader.

What is your target return? How much do you aim to make monthly, as a percentage of your portfolio?

Many traders who are starting out make one simple mistake. They try to make too much money. Yes, greed is good, but if you over-leverage and over-trade out of greed you might simply be taking on too much risk.

Did you know, you can build true wealth over time simply by making small and consistent gains? It is true. Even small portfolios can build dynamic wealth plans that you would be excited about if you understand the power of compounding your gains.

Try this Compounding Gains Calculator:

You will need to enter the following data:

• Starting Balance
• Monthly Contribution
• Number of Months
• Rate of Return (Monthly)

What you will see is the power of earning overtime. A great way to think about cash flow investing and conservative wealth building is through the phrase ‘Get rich slow.’

To build a powerful investing plan, for the long-term, you need to start with realistic goals. Even small, consistent returns can produce life-changing results, if you do it right, and stick to your plan over time.

Chart of the Day: Compounding Gains Calculator

To use the Compounding Gains Calculator, enter a Starting Balance, your Monthly Contribution, number of months you want to calculate, and your Rate of Return (monthly). Then the calculator will build out a graph displaying how much your contributions grow relative to your Earned Interest from your Rate of Return. Give it a try:

Video of the Day: Trading Basics: Compounding Interest

Coach Matt from Tackle Trading conducts a video explaining how compounding interest works and why it is a mistake for people regardless of age or income bracket to fail to start.

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