Compounding expectations versus the reality of slippage and capacity
Posted: Sat Oct 31, 2026 7:02 am
A spreadsheet showing a small daily percentage compounding into a huge figure is easy to build and almost entirely fictional.
Real returns vary, drawdowns interrupt the curve, and costs grow with size. A strategy that earns well with 1,000 dollars may struggle at 100,000, because larger orders cause more slippage and partial fills.
Capacity matters. Scalping strategies that target tiny price changes in thin conditions have limits on how much capital they can absorb before the edge disappears.
A realistic projection includes bad months, periods of no trading, and the effect of increasing costs with size. It also accounts for the personal limits on time and attention.
Treating compounding charts as illustrations rather than forecasts avoids disappointment and reduces the temptation to oversize.
Testing a strategy at gradually increasing sizes and measuring the change in execution quality shows its real capacity.
How does execution quality change as size grows, and where does the edge start to fade?
Real returns vary, drawdowns interrupt the curve, and costs grow with size. A strategy that earns well with 1,000 dollars may struggle at 100,000, because larger orders cause more slippage and partial fills.
Capacity matters. Scalping strategies that target tiny price changes in thin conditions have limits on how much capital they can absorb before the edge disappears.
A realistic projection includes bad months, periods of no trading, and the effect of increasing costs with size. It also accounts for the personal limits on time and attention.
Treating compounding charts as illustrations rather than forecasts avoids disappointment and reduces the temptation to oversize.
Testing a strategy at gradually increasing sizes and measuring the change in execution quality shows its real capacity.
How does execution quality change as size grows, and where does the edge start to fade?