It doesn't mean anything to me. Why would you want to do that? To repeat: RoR = ((1-edge)/(1+edge))^((C-X)/U) where edge = (pW - q|L|)/U and U = (pW² + qL²)^½ RoR < 1 if edge > 0 and C > X
Since I'm an engineer, not a mathematician - I use the back test and try to validate it in live trading. My system breaks down at about 8x. 3x seems to be the limit of my stomach, however, and leaves a good margin of safety. It seems that other trend followers (Eckhardt comes to mind) do it this way, as well. He has some interesting comments about this subject in Schwager's New Market Wizards.
Thanks for the info. Here's some interesting reading material http://www.forexfactory.com/showthread.php?t=275566 http://forex.knowforfree.com/improve-forex-strategies-with-consecutive-losses/ http://www.optionetics.com/market/articles/21296
Maybe someone good in math can summarise the contents of the links to papers here: http://www.physicsforums.com/showthread.php?t=556392 http://www.mathpages.com/home/kmath682/kmath682.htm What does it say
I've tested scaling down position size based on consecutive losers and it actually hurt the performance. For some strange reason, my algo likes more leverage with more losers, probably because it just likes leverge. Again, it breaks down at triple the leverage I intend to use, so this may be why. I tried all kinds of creative money management and it had the highest annual return as a percentage of largest drawdown with a constant leverage. I believe this is the ratio that determines how much leverage is possible. I'm sitting at about 2.5. Classic trend systems seem to be around .5-.8
For a different approach to risk of ruin, check out the following article. One very notable thing is that it addresses trading using fixed fractional sizing as well as fixed absolute sizing. http://www.futuresmag.com/Issues/2009/August2009/Pages/Minimizing-your-risk-of-ruin.aspx