Most don't reinvest money, because if your 10th, 11th, 12 month are big losers, you give back most of what you have made back to the market.
I suggest Toby Crabel's book or his articles from TASC. Also, the article in Jul 2005, TASC is interesting: "Targeting Your Pattern" We've developed scripts based on Crabel & refined them with Scorpio's zones. Statistics work...
Trading systems that work from Thomas Stridsman is a good book on this subject. The title is a bit misleading but the content is very good. Just check amazon for it. http://www.amazon.com/gp/product/cu...79802-0847204?_encoding=UTF8&n=507846&s=books Maurice
Why? Suppose you have 100$ and lose 7% for three consecutive months, as in your example. Without compounding: 100 - 7 - 7 - 7 = 79$, so you lost 21$. With compounding: 100 * 0.93 * 0.93 * 0.93 = 80.44$, and you lost just 19.56$. As another example, suppose instead you won 7% for three months. Without compounding: 100 + 7 + 7 + 7 = 121$, so you won 21$. With compounding: 100 * 1.07 * 1.07 * 1.07 = 122.50$, and you won 22.50$, which is more. In both cases, you're better off by compounding than not.
If you win for 9 months with 7% return and compounding it will 183% return. Now if you lose 7% last 3 months, your account return will be 148%. Second scenario could be worse, if your last 3 months lose is 10% each, you return will be 134%. So it's proving neither methods has any advantage over another. Best/worst Scenarios depend just on your luck.
http://www.forex-books.com/forum/index.php?showtopic=93&st=0&#entry118 System ideas but the system in the book implodes.