In this post,we’ll explain how to double your money within 6 months.Sounds interesting, isn’t it? However it is not as easy as it sounds,but not impossible too.Discipline and determination are the key qualities one should possess for this endeavour.
Before going any further,I would assume you have no additional resources or assets which would aid you in getting this return.You just have an initial investment of 100000 which you want to grow into 200000 in a span of 6 months.Henceforth I would talk in terms of Rupees (INR)
Step 1: Trading account
Open a trading account with a respectable discount broker.And opt for all the segments i.e.equity, F&O, currency and commodities.This might cost you max 500 Rupees.We recommend opening an account with Zerodha or RKSV if you are resident of India.But every country have their own reputed discount brokers.A simple google search would help you to compare various discount brokers available in your country.
Step 2: Learn about Markets and Share Trading
Assuming that you have zero knowledge of markets, go through some of the online free courses to understand capital markets.Give special focus on currency markets and the factors which affect the movement of currency pairs.Try paper trading to boost your confidence.Recently we published a very interesting article on how and where to learn about markets.
Step 3: Assess margin requirements
Go through the margin requirements for various securities in your brokers website.At this point, you’ll realize that the highest available margin you can avail is for currency futures.Learn more about margin trading here.With Zerodha, you can buy 70 lots of USD-INR pair for 100000 Rupees.The real value of this investment would be 70000 USD or 4690000 Rupees (1$=67 INR).That means with 100000 Rupees in your account you can trade for 4690000 rupees.This is the magic of margin trading.Now effectively you need 2% return in 6 months.
Step 4: Your Trading strategy
I would leave it completely to your research and analysis that how would your predict the movement of USD-INR currency pair.This is indeed a vital task for your investment growth and I would recommend you to learn technical analysis.Create a trading plan and stick to it for next six months.If possible backtest your system on tools like Amibroker.Having your trading system in place, I would assume that you are able to speculate the market correctly for 30% of time.That means 3 out of your 10 trades is profitable.Find our Amibroker Trading system for USD-INR with backtest report in the below link:
Steps 5: Risk Management
Risk management is imperative for the success of any Trading system.Try to maintain risk-reward ratio of at least 1:3.That means for every trade Profit target should be 3x and stoploss should be 1x.Let’s suppose your profit target in 0.3 points and stop loss is 0.1 points.Read about our risk-reward calculator here.
Step 6: Achieving your target
Now consider you trade once every day.If we assume 20 trading days a month, then for 6 months it would be roughly 120 trades.Out of these 36 would be winning trades and 84 would be loosing trade (success rate is 30%).If you earn 0.3 points for winning trades, your total profit would be 0.3*70000*36=756000 Rupees.And if you loose 0.1 points per loosing trade, your total loss would be 0.1*70000*84=588000 Rupees.So your total effective profit would be (756000-588000)=168000 Rupees.If we subtract brokerage and other charges the total effective return would come close to 100000 Rupees. TARGET ACHIEVED!!!
We haven’t considered compounding in above steps, otherwise the return would be even higher. So it’s easy to double your money in 6 months even when you profit only 30% of times, Isn’t it? However there are few catches which makes this task extremely difficult:-
- Human mind tends to limit profit and grow losses.We always tend to think that a losing trade will become profitable in a course of time.This badly affects the risk reward ratio.
- The sequence of profits and losses play an important part in calculating the effective return.In the above example, if you make 15 losses in a row then practically you would wipe out your entire capital.An effective way to prevent this is to trade only fraction of your capital at a given time.
Please feel free to ask any questions in the comment section.