Monthly Return Claims: What Compounding Arithmetic Exposes

[Shadow Trader]

Advertisements for signal groups and managed programmes often quote a steady monthly gain such as ten or twenty percent. The claim sounds modest because it is expressed per month, yet simple arithmetic shows what it implies. A constant ten percent gain compounds to a little more than three times the starting balance in a year. A constant twenty percent compounds to nearly nine times.

Continued for a few years, such a rate would turn a small account into an amount that dwarfs the capital of the most sophisticated institutions, which employ research teams, low-latency infrastructure and far better execution. The fact that the same sellers still sell subscriptions rather than quietly compounding their own capital is itself informative.

Another flaw is the absence of variance. Real trading results fluctuate, with losing months, drawdowns and periods of flat performance. A promised smooth monthly figure implies either hidden risk, such as holding losers or doubling position size after losses, or a fabricated record. Strategies of that kind can look flawless until one adverse sequence removes the account.

Better questions concern the worst month, the maximum drawdown, the sample size and the cost assumptions. Honest presentations show ranges and acknowledge losses, while promotional ones show only a rising line and a deadline.