You seem to understand the point I've been trying to make. Or rather Magee's point. The example I provided a couple of posts back doesn't include slippage and commissions. And if one tries to contain the damage by using tight stops and making smaller bets, he just digs himself deeper into the hole.
If you're saying what I think you're saying, then I have to respectfully disagree. In a random system (probability of winning trade = 50%) using a % of equity for your risk sizing method, the expected return (ignoring slippage and commissions) is zero, and not some negative number as you seem to imply.
In the real world, it won't work out that way since there is an equal probability of having a string of losing trades from the first as well as a string of winning trades.
The sum total of which is zero. Or do you disagree with that also? Why do you conveniently ignore the trader who starts off winning? I stand by my statement and have done the simulations to verify it. You (and Magee if he did say it) are wrong.
Come on, you guys!!! If al that is stated here is true, how am I making money?????? I trade systems with a win/loss of 35%. I do use moneymanagement between 0.3% of equity for daytrading systems and 1% for the longterm. I add to winningpositions.... I get losingstreaks of 25 and more.(Yes, if you trade one system on one market, you can have drawdowns of 30% and more, but if you comb. your systems you will be pleasantly surprised). I have include it a random generated excel sheet(this is not a random system!!!), do demonstrated that you can come ahead with a 35% win/loss ratio as long as you winners are much bigger than you're losers. -1 = -1R = 1 risk loss +5 = +5R = 5 times your risk that you gain.
This is my inspirational quote for Wednesday October 22th (a new one everyday here http://www.elitetrader.com/vb/showthread.php?s=&threadid=23474&perpage=6&pagenumber=8) : "The excitement that a gambler feels when making a bet is equal to the amount he might win times the probability of winning it." -- Blaise Pascal, mathematician and inventor of the first calculating machine (1645) In lottery people spend 1$ many many many many many many many many many many many many many many many many many many many many many many many many many many many many many many times ... looking for the BIG gain . So there is a limit of this big gain because of probability law. And that doesn't depends only on your personal choice but on how the system tolerance (the system is the market + the trading system/framework if you have one + you + your capital) operates. Since generally many don't really know how each of the component acts and even more more how act all together, one must be rather not be too foolish about irrealistic gain at least if one talks for general which is the case I suppose here.