RSS
July 06, 2006 | | Comments 14
Print This Post Print This Post

How to Grow Your Trading Account, Part 2

Big Trading Account Once your trading account grows from a small seedling into a giant tree, just remember to buy some bigger clothes when you’re fat and happy. This guy forgot to.

In Part 1, we discussed some general ideas about how to grow your trading account. Here in Part 2, let’s check out the impact of this concept.

Jack and Jill are two hypothetical traders with different personal motives which lead to different plans for their trading profits. Keep in mind that both Jack and Jill have the same trading strategy.

Jack is a part-time trader looking to pull some money out of the market each year to supplement his income and help pay for his boat. Hypothetically, the same trading results will cap his earnings going forward, although it allows him some additional income each year. Every year, though, Jack’s account resembles these figures:
Jack: $100,000 trading account, withdrawing profits annually:
Beginning: $100,000.00
Profits: $20,000.00 (20% return)
Withdraw: $20,000.00
Ending: $100,000.00

Jill is a full-time trader who is performing the same as Jack each year, making 20%. Her husband works and they live off his income, which allows Jill to leave her trading account and subsequent profits intact. Jill begins to make more and more money every year with the same 20% performance. Look at the rapid growth Jill enjoys in her account:
Jill: $100,000 trading account, leaving profits intact:
Year 1 Beginning: $100,000.00
Profits: $20,000.00 (20% return)
Withdraw: $0.00
Ending: $120,000.00

Year 2 Beginning: $120,000.00
Profits: $24,000.00 (20% return)
Withdraw: $0.00
Ending: $144,000.00

Year 3 Beginning: $144,000.00
Profits: $28,800.00 (20% return)
Withdraw: $0.00
Ending: $172,800.00

Year 4 Beginning: $172,800.00
Profits: $34,560.00 (20% return)
Withdraw: $0.00
Ending: $207,360.00

WOW! Jill more than doubled her trading account in 4 years, whereas it will take Jack 5 years to double his initial stake. For Year 5, Jill would only need to make 9.7% to match Jack’s profit of $20,000! Or, she could match his 20% performance and more than double his profits for the year.

We all know the amazing results of compounding money, but hopefully this example of two hypothetical traders will get you thinking about what to do with your trading profits. If the freedom to access your trading profits each year is something you need, then regular withdrawals are for you. However, if you’ve got the savings put aside or an additional income to get you by, leaving your profits in your trading account even for a few years can do wonders for your trading results, even if your methodology never improves!

Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com

By the way, subscribing to this RSS feed will mean you won’t ever miss a post!

[tags]Trading Strategy, Stock Trading, Trading Account, Trading Profits[/tags]

Related Articles:

  • Mark

    But who trades using 100% of their buying power? I guess if you are truely disciplined you can increase your lot size as you make more money. But, be careful trading size can cause new problems.

  • Administrator

    Who said anything about using 100% of buying power?

    This is a hypothetical look at what happens if 2 traders who make 20% over the course of a year (by no means an impressive return) do different things with their profits.

    In part 1 I mentioned that a slightly bigger account will provide you with an exponential rise in buying power, but I didn’t mention using it all.

    Jeff

  • livermoresghost

    why not just start with a million dollar account, then at twenty percent returns, you can spend some and save some?:)

  • Administrator

    Love it! Why didn’t I think to add a comma??

    Jeff

  • Mark

    no doubt about it, increasing your lot size exponentially can definately bring in more money.

    i’m still trying to be consistent with my minimum 200 share style.

    thanks for the blog, my favorite read after a day of trading. keep up the good work

  • Administrator

    Thank you Mark, glad you find it of interest!

    I like your effort to find consistency on one level before progressing to the next. That should make the transition a successful one when you’re ready.

    Have a great weekend,

    Jeff

  • shirley

    Thank you jeff, this shirley i am new to trading and blogging.your trading information is very helpful.Nice blog…

    regards

  • http://www.thestockbandit.net/2006/07/25/pick-grin/ TheStockBandit.net » One Method for Profiting in this Tricky Market

    [...] This went on for a few months, and I was amazed to see what my consistent gains were adding up to by the end of the month. Minor gains in a handful of stocks were booked with regularity, and the end result was a fatter trading account. [...]

  • roberto

    This blog is really helpful to ametuer investers as it gives them a feel of the market beforehand and also i wud siggest them to keep asking questions so that they wud get answers frm guys who are there since some time and have real gud knowledge abt the market.

    roberto

  • http://www.thestockbandit.net/2007/07/18/round-numbers/ Round Numbers | TheStockBandit.net

    [...] If you’re finding it difficult to get over the hump in your account as you reach a certain number or account highs, HIDE THE NUMBER! I’ll bet it helps you focus on your trades much better, and that alone should get you back on the right track in growing your trading account. [...]

  • http://www.thestockbandit.net/2007/11/10/welcome-barrons-readers/ Welcome Barron’s Readers! | TheStockBandit.net

    [...] Here are a few how-to articles I’ve written… *How to Grow Your Trading Account (Part 1) *How to Grow Your Trading Account (Part 2) *Gauging Urgency in Chart Patterns *3 Keys to Buying Dips *Finding Short Sale Candidates *Stop It! *How I Use Worden’s TeleChart 2007 *Watch List Management *Blending Your Style With the Current Environment [...]

  • http://www.thestockbandit.net/2008/01/11/practical-risk-vs-reward/ Practical Risk vs. Reward | TheStockBandit.net

    [...] It’ll keep you in the game and help you grow your trading account. [...]

  • http://www.thestockbandit.net/2006/07/05/how-to-grow-1/ How to Grow Your Trading Account, Part 1 | TheStockBandit.net

    [...] Good trading is the short answer, but there’s a longer answer if you want it. The decision to leave your profits in your account is an important one. Having a secondary income from another job or your spouse can help minimize the initial impact of leaving your profits intact. Having a savings or checking account big enough to get you through several months can also make it easier. By making the commitment to retain profits in your account, you’ll soon see that your current level of performance is going to mean even bigger profits going forward. In Part 2, we’ll take a look at a pair of hypothetical traders in different situations with different plans for their profits. [...]

  • http://www.thestockbandit.net/2008/09/18/welcome-kirk-report-readers/ Welcome to The Kirk Report Readers! | TheStockBandit.net

    [...] Here are a few how-to articles I’ve written… *How to Grow Your Trading Account (Part 1) *How to Grow Your Trading Account (Part 2) *Gauging Urgency in Chart Patterns *3 Keys to Buying Dips *Finding Short Sale Candidates *Stop It! *How I Use Worden’s TeleChart 2007 *Watch List Management *Blending Your Style With the Current Environment [...]