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Compounding profits to snowball

Remember learning simple interest and compound interest when you were in school?

No, we don't want you to recite the formula for interest calculations here. Just wanted to remind you of a small fact that compound interest amounted larger than the simple interest for the same rate of interest and same period.

And today we are going to look at how we can apply the same principles to create a snowball effect on our profits from the stock markets.

Let us say, that you book a profit of 10% every month from your trading activities in the stock market. (We at know this is achievable with our accurate short term positional calls) Also let us consider that you have a modest amount of Rs 10,000 which you can spare for your trading activities and would not want that money for another year for any other purpose.

A simple mathematics would reveal that with a investment of Rs. 10,000 and a monthly profit of 10%, you would earn Rs. 12,000 in a year. Not bad at all, considering any other investment options available.

But wait, what if we say that with a investment of Rs. 10,000 and a monthly profit of 10%, you can earn a profit of over Rs. 21,000? Sounds great huh !!

The trick lies in a simple fact that you reinvest your profits every month instead of withdrawing your profits month after month. That is you compound your investment to compound your profits.

Take a closer look. At the end of the first month, you have earned a profit of Rs. 1,000 (Rs. 10,000 X 10%=Rs.1,000). Now, instead of withdrawing the profit of Rs. 1,000 you reinvest the same into your trading activities. So for the second month, you have a capital of Rs. 11,000 instead of your usual Rs. 10,000. This 11,000 fetches you a profit of Rs. 1,100 which you again reinvest for the third month, making your capital ro Rs. 12,100 which fetches even bigger amount of profit.

The following table will give you a complete picture of the entire period of 12 months

Capital Employed
Profit @ 10%
Rs. 10,000
Rs. 1,000
Rs. 11,000
Rs. 1,100
Rs. 12,100
Rs. 1,210
Rs. 13,310
Rs. 1,331
Rs. 14,641
Rs. 1,464
Rs. 16,105
Rs. 1,611
Rs. 17,716
Rs. 1,772
Rs. 19,487
Rs. 1,949
Rs. 21,436
Rs. 2,144
Rs. 23,579
Rs. 2,358
Rs. 25,937
Rs. 2,594
Rs. 28,531
Rs. 2,853

And at the end of 12 months, your capital employed turns into Rs. 31,384 (28,531 + 2,853), leaving you free to withdraw the Rs. 21,384 and leaving Rs. 10,000 so that you can start over again in the new year.

So remember, a habit of not withdrawing your profits very frequently and reinvesting those profits in the stock market will bring you much bigger profits.

But how to ensure that 10% average of profit booking? Well, we, at do all the necessary analysis of “The trading sentiment” and “The counter activity index”, before making any recommendation as a “Positional Call”. These positional calls usually give a profit of about 10% in approximately 2 to 4 weeks. Please take a 15 day Free trial and check out for yourself.

A word of caution though. If you happen to be bitten by the curse of the stop loss, and book losses in your trades, then it means that much less capital for your rest trades. And therefore, your trades will have to give you bigger profit margins to catch up. So beware, never book losses. But better still, enter into a trade where you do not have to fear about booking losses. Go for our positional calls.

Happy Trading !!!

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