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After having tried the above formula, it doesn't seem to produce correct results. So either the formula or my implementation is wrong. Maybe it is easier to get the desired values via the Monte Carlo.
Hi, just recently joint the group, so although a late, I thought I'd post my version of an Excel Monte Carlo here.
It generates 1000 random numbers (with the Excel function) and generates trade results from these.
There is a macro included to write and plot 50 iterations over 1000 trades.
Plots for single iteration equity curves and underwater lines are drawn for 100, 250, 500 and 100 trades.
Envelopes for 50 iterations of 100, 250, 500 and 1000 trades are plotted.
It has fields for the following:
1. Initial account balance,
2. Maximum allowed gearing (which determines the number of contracts if fractional position sizing is selected)
3. No of winning trades from your trading / backtesting records
4. No of losing trades
5. No of break-even trades
6. Average winning trade (ticks)
7. Average losing trade (ticks)
I also incorporated inputs for trading costs, as these can take big bites out of the pie:
8. Bid / ask spread
9. Slippage
10. Brokerage fees
11. Exchange fees
12. Platform fees
Note that break even trades will show up as losses because of points 8 to 12.
I'd appreciate any feed back especially with regards to points 8 to 12.
@Big Mike I'd like to share my point of view about the subject. Copule of months ago I did same research, and you are right. I make 4 trading sistems, 2 with compound and 2 without. I use R-multiples so I can use a ROI formula for seek of simplicity(ROI = win% in decimals*R, if subtract 1 you'll get your edge in percents), which is same as M(E) with R:R ratio. So i just set up system A for 80% win and R= 1.5 which is equal to ROI = 1.2, and system B with parameters 30% win rate and R= 4 with the same ROI of 1.2. The outcome was that 2 systems with same edge and compound with same amount (1% of actual capital), more profitable is the system with higher win rate. It's all about how high frequently compound. I make Excel sheet to proof that statement. I don't add spread and commissions in math, but I think it's no need, if you measure the moves in money not in pips. I'll be happy if I help.