Spreadsheets love compounding. Ten percent a month for two years turns a small account into a big one on paper. Forum posts share these projections like prophecies.
Reality interferes. Returns aren't steady, drawdowns arrive, and as the account grows, position size grows too. Scalping strategies often don't scale: slippage increases with size, fills worsen, and liquidity limits appear in thin pairs.
There's also a behavioural problem. A trader comfortable with a 100 dollar loss may panic at a 1,000 dollar loss, though both represent the same percentage. Emotional pressure grows with the absolute numbers, and decision quality can suffer.
A realistic projection uses a modest monthly return, includes losing months, and caps position size at a level the strategy can actually handle. The curve looks far less exciting, and far more honest.
A quick sanity check is to run the projection with a bad year inserted: a month at minus eight percent, then another at minus five. The final number drops sharply, and the shape of the curve starts to resemble something that can actually happen.
What assumptions sit under the growth projections for the account?
Advertisement
The compounding illusion
Recommended broker for automated trading & scalping
