Question:

If you have a trading account of 80,000. You also have a win rate of 75%, and a profit factor of 1.6, and I risk 1-2% for each trade. Given these parameters, can you figure out an estimated timeline when the trading account turns to 2 million?

Answer:

To give you an estimation, I’ll make some assumptions and perform a few calculations. Keep in mind that this is a simplified example and actual results can vary significantly.

Assumptions:

1. You risk 1.5% of your account balance per trade (the average of 1-2%).
2. You have a 75% win rate.
3. Your profit factor is 1.6, which means that your average winning trade is 1.6 times larger than your average losing trade.
4. All trades are independent, and your win rate and profit factor remain constant.

Given these assumptions, we can calculate the average profit per trade:

Average Profit Per Trade = (Win Rate * Average Win) – ((1 – Win Rate) * Average Loss)

Since we know the profit factor, we can express the average win as 1.6 * Average Loss. Plugging that in:

Average Profit Per Trade = (0.75 * (1.6 * Average Loss)) – (0.25 * Average Loss)

Now, let’s express the average loss as a percentage of your account balance:

Average Loss = Account Balance * Risk per Trade = 80,000 * 0.015 = 1,200

Plugging in the average loss:

Average Profit Per Trade = (0.75 * (1.6 * 1,200)) – (0.25 * 1,200) = 1,080 – 300 = 780

Now we know that you make an average profit of $780 per trade. To reach your goal, we need to determine how many trades are required to increase your account balance from $80,000 to $2,000,000:

Total Profit Needed = 2,000,000 – 80,000 = 1,920,000

Number of Trades = Total Profit Needed / Average Profit Per Trade = 1,920,000 / 780 ≈ 2,462

So you’d need approximately 2,462 trades to reach your goal. However, this number doesn’t take into account the compounding effect of increasing your account balance. With compounding, you’ll likely reach your goal in fewer trades.

To estimate the number of trades with compounding, we can use the formula:

Final Balance = Initial Balance * (1 + Average Profit Per Trade / Initial Balance) ^ Number of Trades

Solving for the number of trades:

Number of Trades = log(Final Balance / Initial Balance) / log(1 + Average Profit Per Trade / Initial Balance)

Number of Trades = log(2,000,000 / 80,000) / log(1 + 780 / 80,000) ≈ 221

With compounding, you would need approximately 221 trades to reach your goal of $2,000,000.

Keep in mind that this is a simplified analysis and the actual number of trades needed may vary. Additionally, past performance does not guarantee future results, and the market is unpredictable. This calculation does not consider factors such as drawdowns, changes in market conditions, or changes in your strategy.