Best compounding strategy?

Is there a better compounding strategy better than risking 1-3% of an account per trade?

I'm familiar with the method: "risk 1-3% of your account for any one trade over your stop loss & compound with wins & de compound with losses."

I'm wondering is someone has a better way that compounds faster without whiping out wins with losses?

A while back I read about someone posted that a mentor had told them to go for 100 pips a week and stop at that goal. Every 100 pips was a level and the point at which you would up your lot size. I can't find the thread as it was quite a while back. But, by doing this the person claimed that over some they made quite a bit of money.

Unfortunately, compounding aggressively is very dangerous unless you know your general R:R and win trade %. The general 1% to 2% per trade is designed to keep you alive for the long run.

The Kelly Criterion is a formula used to determine the optimal size of a series of bets. It is very aggressive, often people opt to use a fraction of that amount. ("google" Kelly Criterion)


You really have to know your system/methods win trade % and R:R to "maximize" this without having a small chance to "blow up".

This may mean 500 to 1000 trades or more.

The other element to consider, is "psychological pain". How much "pain" can you endure?

For myself, a 10% drawdown in a single day is devastating. Though lately, I have had a pair of trades go against me a total of 7% on a few occasions. This is close to my threshold of pain. It is bearable because I have had good results over the past few months and 2-3% day gains are not uncommon. I have an idea of what is reasonable for me, because I have completed over 1,000 trades in 2010.

Unfortunately, until you get your system/methods really "shaped" and solid, the 2% per trade is probably the MAXIMUM risk I would assume.

Forget about how much you can make, and consider how much you can lose. If you "Bank" some profits and want to gamble then that is your right I suppose.

If you use any discretion at all (meaning you, the person, have some influence over whether to take trades or not), you can have very bad days. I have lost 9-10 trades in a row, more than is statistically probable,
on some "bad" days. It happens.

Currently, I am compounding at every 15% growth in my account. I then change my position size to reflect a 5 pip loss being less than a 1% account loss (0.8375% actually), but this is specifically tailored to my style.

If you have a trading platform that allows small position size changes, you can compound daily based upon profit/losses if you like. Use 2% account risk per trade, compound daily, (recompute tomorrow's new position size at the end of day)... that is my riskiest suggestion.

Good Luck!