Lisa, I like your comments and I know you are a very sharp person. You are right in everything you say. Here are my thoughts.
(1) There are three aspects of trading that have to be mastered to achieve high returns: system development, position/money management, and emotional discipline.
I am working on all of them simultaneously. You can see in my trades that I vary position sizes and I also vary the trading vehicles (NDX, SPX, US Bonds). I am very mindful of gambler's ruin problem which is more acute when trading leveraged funds like Profunds. That is also why the trades are based on a system which is not fully mechanical. In addition, to counter the gambler's ruin problem I am attempting to dynamically decrease my position sizes after unsuccessful trades and increase them after successful trades.
The emotional discipline is maintained by entering trades based on valid system signals and also by pausing trading and re-evaluating the system when the results are sub-par. Positive trading results increase my confidence in the system and therefore my emotional capability to trade based on system signals. Position sizing also plays a role in maintaining emotional discipline since lower position sizes reduce my risk after unsuccessful trades.
(2) In general, based on my readings and observations, I believe that markets are largely efficient so that above-average returns (adjusted for risk) are very difficult to achieve.
Yet, a number of individuals were able to achieve above-average returns historically, possibly due to "pockets of inefficiency" in markets. I am trying to determine through data analysis if above-average returns can be achieved and to what extent (say, 10% a month on NDX on average using EOD trading).
(3) My comment regarding institutionalizing my system needs to be further elucidated here because of possible (unintended) mercantilistic connotations.
The only interest I have as far as "institutionalizing" my system is to do what some of the most famous traders have done in the past. I intend to trade, if successful, until I grow my capital to a reasonably large size. At that point, and only at that point, I would consider starting a hedge fund of which my own money would constitute a large percentage. The idea is to continue trading using my system as usual for years but, at some point, accept large accounts for pooling with my own account in a hedge fund format.
In fact, out of curiosity at this point, I am reading up on hedge funds performance and strategies to assess performance levels and consistency expected in the hedge fund area. Interestingly, hedge funds make substantial efforts to develop proprietary trading strategies which have academic validity in terms of market anomalies (departures from market efficiency). Financial Analysts Journal is an accessible source of information on these issues.
