Compounding

A trader who makes a modest, consistent return every month, and never blows up the account in between, ends up ahead of a trader chasing bigger swings who occasionally wipes out a chunk of it, even when that second trader’s best months looked more exciting along the way. Compounding rewards consistency over size Gains compound on whatever the account currently holds, so a smaller return sustained over many periods outgrows a larger return that gets interrupted by one big loss. The big loss doesn’t just erase that period’s gain, it erases the base the next gain would have compounded on. ...