1. Persistent growth 2. Persistent growth built on persistent growth. * Note: anything can grow, including profit and loss.
I buy one lottery tickets to play as many times as it allows. I bet on a game such as throwing coin as few time as I can. Catch a win and walk away. "I am a stone. I do not move. Very slowly I put snow in my mouth so he won't see my breath. I take my time... I have only one bullet...I have no fear. I am a big boy now." -- Enemy at the Gates (2001)
The math behind compounding is exponential functions, which are monotonic and have linear differentials. Okay, let's just stop here before getting too deep into math for which we only need to know just a little to be able to trade.
Don't confuse compounding with leveraging. They are totally different animals. Leveraging allows us gain or lose more than we normally can in just one shot, while compounding works in many shots and typically in longer periods.
Hi QdzResurrection, Are you seriously trying to apply network flow theory to the psychology of trading, or are you just making some kind of joke? If the former, I'd be happy to help you guys with any math questions - graph theory is considered a bit esoteric, but you can get pretty far with basic linear algebra, no more complicated than you'd need for a decent-sized macroeconomic model. That particular graph was developed for my work on trust relationships in large distributed systems. Since then, I've learned quite a bit more of social network theory. I highly recommend the book "Linked" by Albert Laszlo Barabasi as an accessible, thought-provoking introduction.
Comment: In order to beat the bull market, long positions have to be liquidated at the correct moment and reestablished in retracement, possibly with increasing size for compounding. This is what I did and will continue to do with my aggressive long positions.