Why Won't I Double My Account Every Month?

[Jason]

You know how they say, 'no matter how good you think your system is you won't be doubling your account every month' or something like that, what reasons are there for that to be true, that are not so obvious? I'm just trying to see what I'm missing in my thinking (I'm not actually expecting to double my account every month )

[jlcgarcia]

You know how they say, 'no matter how good you think your system is you won't be doubling your account every month' or something like that, what reasons are there for that to be true, that are not so obvious? I'm just trying to see what I'm missing in my thinking (I'm not actually expecting to double my account every month )

Hi,

The near I have been for doubling the account every year has been with this backtest

imagen1.GIF

and I am still doubtful that I will trade this bot live some day.

Regards

José Luis

[mjws00]

It comes down to your risk of ruin. In order to gain 100% per month, you have to put a large percentage of your account at risk. Since there are no perfect systems this does NOT allow for your maximal number of losing trades in a row. Even if you take best case scenarios and you only end up wiping half or three quarters of your account out in a bad run it will still be very hard to recover your funds.

The reality is anything much over 20-30% drawdown is incredibly hard for most people to stomach at any meaningful size. You might get away with it for pennies, but it will keep you up at night if you are swinging a massive portion of your account around.

Remember even if your numbers and win rate looks great. Your real life sample size is SMALL statistically speaking. You don't have a million trades to get the law of large numbers working for you, and your true edge is much smaller than you think. The best and brightest are on the other side of your trade...

Chances are good there are market conditions you haven't experienced and there is a string of losses coming worse than you expect. That is why most well survived traders and anyone with size doesn't risk enough to double their account every month. We could leverage up and double no problem. But the survival rate and pain become unbearable, even for the strongest. You want to be able to ride the swings without affecting your performance, so you can position yourself for the good trades when they come.

Good luck.

[Jason]

That looks like a pretty impressive record from what I can read. I understand your concern though. Just recently the market appears to be a little different than last year and I have had to change my own system.

The near I have been for doubling the account every year has been with this backtest

and I am still doubtful that I will trade this bot live some day.

Regards

José Luis

[Jason]

I've been trying to always be on the side of the best and brightest lately My sample size is miniscule at the moment and unfortunately there's no way I can backtest because it's mostly fundamental analysis. Looks like I will just have to grow humongous balls and stop trading my full risk whenever I lose a certain number of times until I manage to become consistent again.

Thanks

It comes down to your risk of ruin. In order to gain 100% per month, you have to put a large percentage of your account at risk. Since there are no perfect systems this does NOT allow for your maximal number of losing trades in a row. Even if you take best case scenarios and you only end up wiping half or three quarters of your account out in a bad run it will still be very hard to recover your funds.

The reality is anything much over 20-30% drawdown is incredibly hard for most people to stomach at any meaningful size. You might get away with it for pennies, but it will keep you up at night if you are swinging a massive portion of your account around.

Remember even if your numbers and win rate looks great. Your real life sample size is SMALL statistically speaking. You don't have a million trades to get the law of large numbers working for you, and your true edge is much smaller than you think. The best and brightest are on the other side of your trade...

Chances are good there are market conditions you haven't experienced and there is a string of losses coming worse than you expect. That is why most well survived traders and anyone with size doesn't risk enough to double their account every month. We could leverage up and double no problem. But the survival rate and pain become unbearable, even for the strongest. You want to be able to ride the swings without affecting your performance, so you can position yourself for the good trades when they come.

Good luck.

[mjws00]

I don't think the long term traders and true fundamental guys ever really have decent stats they can use. They just need massive confidence in their market "reads". Seems to me a TON of that is purely experience. How many NFPs are you going to see in a fundamental life time even 20 years... 240? How do you quant news that may be quarterly or monthly on markets that are changing significantly every few years. You have to simply measure your trades and manage your risk.

I personally wouldn't put any faith in my stats at 100 trades. But I trade ideas I can test. Some use smaller numbers. When I used to play poker we'd often use 200K hands and recommend over 500K to begin to see real win rates not just running hot or cold.

I think people often underestimate just how badly you can run even with good systems. Add in a few human factors and there is a reason why most people that have survived more than a few years risk only a small percentage on any single trade. The 1-2% numbers exist for a reason. I like to be very aggressive with profits, but even that can really hurt when you undo a months work quickly, on what may have been a perfectly executed trade.

Best game in the world.

[Nufty]

I actually started trading when I had the epiphany that turning $1,000 into $1mill only takes 10 trades.. I originally thought about gambling on horses

I have never cracked it for a system that makes so many winning trades in a row though... but I keep looking for the holy grail.

I do know a guy that has done this twice with options. He did it a third time for a client.

However, I see FX as a better "bet"

Good luck with doubling your account every month - with compounding it will really go places

Nufty

[Jason]

Thanks . Even though I have such a tiny sample size it seems like I could be wealthy one day. Whatever small confidence I have comes from the adaptability of my daily pre-trading analysis, my trades (probably) being right 80% of the time (even higher... So far anyway), and my reward to risk ratio being 2.5-3.5... If all that is true and my success rate drops to 50%, I will still make a crazy ROI?

Except for the 80+% success rate, do most traders think their system could perform this well, then go on to lose their entire account?

[garyfritz]

Remember you can turn a great winning system into a LOSER just by betting too large.

Simple example: flip a coin. You win 2x your bet on heads, lose 1x your bet on tails.

That is a GREAT system. You could get very rich very fast with that system.

So, it's so great you bet your whole account on it! First time you get tails -- boom, you're busted. You ruined a killer system.

That's an extreme example but the concept applies to any system. Every system has a level of risk that maximizes your returns over the long haul. Bet above that level and you will make LESS money. Bet anywhere near that level and you'll make a ton, but you'll suffer 90-95% drawdowns along the way. Bet well below that level -- like, 5-20% of that level -- and you'll make good returns with manageable drawdowns.

See http://www.stevehopwoodforex.com/phpBB3 ... 5305#p5305 if you want to see some of the details & math behind this idea.

[Jason]

Thanks very much, that helps