Evaluating profit

Hi,

This is a very basic question. I have been trying to find a trading strategy that would give me a good return on investment. I know many traders will say that the risk/reward ratio is more important than the success rate of trades, but I am more comfortable with the latter.

On daily timeframes, the strategy I used would have given over 14000 pips when applied on 12 currency pairs for the whole year 2009. The success rate of trades is around 82%. The 2009 backtest gave 53 winning trades (average=+347 pips/trade) and 12 losing trades (average=-314 pips/trade).

My question is: if I had 500$ as starting capital, what would have been the net profit if my risk is up to 5%. I know it has to do with the type of account and the value of one lot, the leverage and all that, but it would help me a lot to understand if somebody could give examples. What about 100$, 1000$, 5000$ as starting capital?

Thanks and regards.

I will show you a way which is not acurate( i think )but should give you an idea .
1/what's your edge :R/R=347/314=1.1055 Winrate 85%
so 0.85*1.1-0.15*1=0.789
2/you avrage win is 0,789*risk=3.94%
3/you retun will be of 1.0394^65=12,32 =>6163$
I think you shouldn't forget to demo first ,it could be harder to trad the good signal than to backtest them .

According to the trading rules I am following, the RR is 1:1. So when I identify an entry signal, I set my stop loss at the last swing high/low and it becomes the amount of my profit target. So with a win rate of 82%, your logical steps should then be:
1) edge 0.82*(1-0.18)= 0.672
2) avrg win 0.672*risk= 3.36%
3) return 1.0336^65= 8.57=> 4285$

100$ capital => 857$
500$ capital => 4285$
1000$ capital => 8570$
5000$ capital => 42850$

I don't know if this is right, my maths are buried deep in my memory.

I know I should demo first. I just want to get an idea of the return on investment.

thanks.

Maybe there is another way of calculating how profitable the strategy is with these data (2009):

starting capital = 500$
avg profit = +347 pips/trade
avg loss = -314 pips/trade
RR = 1:1 (at each entry the avg risk was around 340 pips)
number of entries = 65
success rate = 82% (82 trades out of 100 are profitable)
risk = 5%*capital


What would be the equity at the end of the year? I am not sure about the previous calculations.

Thanks.

Try these simulation(click F9 to make a new one ) if you don't want to compound ,you should look after something name Gambler's Ruin simulation(sorry couldn't post the link ,because of my low number of post )

Thanks. The program gives interesting results, although I'm not sure I understand 100%. Will look more into it. I work with OpenOffice. Have you tried F9 with it?

I also use scale but i didn't do the spreadshit .
I have try it with F9 and it give me new result ,but i think you should have macro activate .