Hi everyone,
I thought I would post up this question to see if anyone else is struggling with this or have some valuable insights to share:
I currently have an automated strategy that I have been back testing and currently tweeking that averages 34-36% win ratio and an average return of ~2.5:1.
While I am working on how to reduce the average loss size I have also been thinking of my money management strategy and namely compounding.
From what I have read any strategy that averages 34% win rate is going to have a ~40% draw down at some stage. If this is the case then it is driven by having a run of losers which means that if we change the risk size per trade to compound, we will ultimately be compounding in the wrong direction when we have a run of losers and as we know a loss of 1% does not equal a win of 1%.
What strategies do people have to minimise the effect of negative compounding when they are having a run of losers?
Thanks in advance.
I thought I would post up this question to see if anyone else is struggling with this or have some valuable insights to share:
I currently have an automated strategy that I have been back testing and currently tweeking that averages 34-36% win ratio and an average return of ~2.5:1.
While I am working on how to reduce the average loss size I have also been thinking of my money management strategy and namely compounding.
From what I have read any strategy that averages 34% win rate is going to have a ~40% draw down at some stage. If this is the case then it is driven by having a run of losers which means that if we change the risk size per trade to compound, we will ultimately be compounding in the wrong direction when we have a run of losers and as we know a loss of 1% does not equal a win of 1%.
What strategies do people have to minimise the effect of negative compounding when they are having a run of losers?
Thanks in advance.