Mr Subliminal That explains why I thought the original maths was wrong. It wasn't after all. It was taking into account the permutaions you have illustrated here. Now you've answered one of the things nagging at me. I just didn't realise what I was looking at in the results. Natalie
You're treating the 2 trades as 4 separate series of two trades. You're also resetting your account equity after every 2 trades. Would you really add or subtract money from your account after every two trades? If so, then yes, the expectancy would breakeven. If you combine the 4 series of trades in any order as you would when trading using % of equity, then this is what you'd see:
From the way you put it, it sounds like pyramiding is a necessity in function of the amount of money involved. I mean, the larger your account the more you will need pyramiding to balance risk and reward. It's probably a special task for funds which have to play the big move and have the hard task of making money flow in and out of the markets effectively, without exposing themselves too much to risk. I don't want to abuse your generosity, professor Dark, but could you give us a simple, practical example of pyramiding? I am just keen to knowing more about the modus operandi of the big guys. OPC
It doesn't matter whether it's 2 trades or 200 trades - when analyzing X trades, then yes, I would reset the account equity after every X trades. This is not a 2-trade model but rather 1 scenario of an 8-trade model. There are 255 other possible combinations which, when weighted by a factor of 1/256, will total exactly $100,000. somedrag.gif is thus a misnomer.
Interesing debate here. Backtesting over different periods usually has the equity re-set, so in that sense it does equate with having strategies that work some times and not others. In practice strategies don't always work all the time either and periods of heavy draw down followed by periods of good profitability attest to this. The question then becomes how to apply this knowledge? Corso has also raised that question in a different thread about analysing the equity curve. Maybe the 2 threads are now very much in paralell with eachother? Natalie