The honest way to read this
Compounding is real and it is the reason patient accounts beat clever ones. It is also the favourite tool of everyone selling a signal service, because a spreadsheet will cheerfully show 10% a month for three years and land on a number with a lot of zeroes.
Two things that number quietly assumes:
- Every period is positive. Real returns are lumpy — four good months, one bad one, and the bad one takes a bite out of the compounding at exactly the wrong time.
- The position size grows with the account. Which is fine on paper, and much harder in practice when the size that made you 5% now means risking a month’s salary on one trade.
Losses compound too
Put a negative return in and watch. Down 10% a month for a year leaves 28% of the account. And the recovery is not symmetrical: a 50% drawdown needs a 100% gain to get back, which is why every risk limit is worth more than every winning strategy.
A number worth aiming at
Consistent professionals talk in low single digits a month with controlled drawdown. 2% a month compounded is 27% a year, and doubles the account in three years, without a single heroic trade. That is a target you can hold. The three-digit ones are the reason people stop trading.