Do you trade for an income or for a compound effect?

sef88 said:
But I doubt in real-life, equity curve will be so smooth :)
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I agree, but what numbers should I then take? I have real trades, but not going to show them. :D
I took the total profit after 1 year and recalculated what the average profit per day should be to the end result. With that method the equity curve is always smooth, as you are smoothing the profits and the losses.
My statement is that compounding makes a huge difference.
I just wanted to show the link between compounding and performance.
 
newwurldmn said:
You can’t compound and trade for income. The definition of compounding is that you use your gains to generate more gains. The definition of income is you take the income out to spend. Any money you take out isnt being used to generate more gains.
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You can compound from trade to trade. And frequency of trades is a key factor. Sorry swing traders.......or investors. Lol

More frequency = more opportunities to compound. Sorry investors.......
 
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virtusa said:
I agree, but what numbers should I then take? I have real trades, but not going to show them. :D
I took the total profit after 1 year and recalculated what the average profit per day should be to the end result. With that method the equity curve is always smooth, as you are smoothing the profits and the losses.
My statement is that compounding makes a huge difference.
I just wanted to show the link between compounding and performance.
More...
For initial research I vet strategies using a fixed quantity (i.e. 1 contract). Once I get things dialed in, I then switch to a position sizing method based on account balance and backtest all my strategies together to optimize for an acceptable max drawdown. The method you described might be misleading you. Try running a simulation with your entries and exits but size the trade based on your adjusting account balance. That will give you a clearer picture of things.
 
fan27 said:
For initial research I vet strategies using a fixed quantity (i.e. 1 contract). Once I get things dialed in, I then switch to a position sizing method based on account balance and backtest all my strategies together to optimize for an acceptable max drawdown. The method you described might be misleading you. Try running a simulation with your entries and exits but size the trade based on your adjusting account balance. That will give you a clearer picture of things.
More...


I have a huge excel in which I can change a lot of parameters to analyze my trading.
Most important parameters are:
  • account size
  • starting date
  • stop level
  • symbol of traded item
  • switch to calculate in points or in $$
  • slippage
  • point value (for each item I trade or wish to trade )
  • commission
  • max numbers of contracts I want to trade
  • margin (table with different margins per contract depending on size traded)
  • max drawdown I accept
  • max risk per trade I accept (will then calculate and adapt other parameters if needed)
  • switch compounding on or off, or limit compounding till a certain level
If I select a future automatically the specific data for the parameters are loaded.

Report gives all typical results.
I can do all kind of what if simulations.
 
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