Trading is a difficult profession – its difficulty comes not so much from mastering the technical aspects since these are always overstated by the magic indicator fools but rather in coming to terms with the psychological and emotional difficulties that arise. In part, these difficulties arise because of perceptions as to how easy trading is supposed to be and how money just flows into your pocket without any problem at all. This perception is in part based upon naivety and part upon nonsense people read and hear.
This notion of perceptions regarding unrealistic returns popped up yesterday in conversation and while it is a boring chestnut of a topic it does seem to be something that doesn’t cut through the static of either social media or wishful thinking. The topic of this conversation was how easy it was to make 50% per annum and never suffer a drawdown. So it was time to fire up Excel for a quick look at how staggeringly wealthy you would become making 50% per annum with no drawdowns. For the purposes of shits and giggles, I broke the compounding periods down into yearly, half-yearly, quarterly, and monthly. Calculating this over a20 year time frame and with a starting capital of $1M I and got the following.
And every table needs a chart.
As you can see in the most optimistic projections the initial $1M starting capital has grown to $1.79B in 20 years – not bad going. I have to admit that it is slightly more realistic than the 1000% per month that apparently people on Twitter are getting but it is still not realistic in the real world.