Why do you limit the maximum drawdown on the account? - page 18
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It's very simple - a 100% drawdown will happen faster than a 200% return. It's the law of life.
So if you plan for a 100% drawdown you don't need to plan for income - most likely you won't get to it ))))
In fact - it's a game of roulette - take it or leave it.
It's better to throw money to the wind and not to deal with this nonsense.....)))
Well, you have not calculated it correctly. In order for the system to earn 100% per annum after a 50% drawdown, it must earn 300% over the remaining time (of funds after the drawdown). I.e. in case of B the earnings after drawdown will be: 500K+500K*300%=2000K. I.e. the same eggs in profile))
It's very simple - a 100% drawdown will happen faster than a 200% return. It's the law of life.
So when you're planning a slump of 100% you don't have to plan for profit - most likely you won't make it ))))
In fact - it's a game of roulette - take it or leave it.
It's better to throw your money away right away and not to deal with this nonsense.....)))
It is even a law of mathematics. The probability of getting anything like a maximum drawdown of 100% is much higher than getting a 1000% profit. The problem is that a 100% loss can only be made once and that time will always be the last.
Everything to watch. And in general, a "coup" from the 44th minute.
Thank you, Romashka! You're very kind) I'll see how much of a locker and martingale this Gerchik is)
It is even a law of mathematics. The probability of getting anything like a maximum drawdown of 100% is much higher than getting a 1000% profit. The problem is that you can only have a 100% loss once and this time will always be the last.
Just in your example after drawdown investor A increased his deposit 4 times and investor B 3 times (with the same 500k current investment). In general, you counted wrong.
Here is a schematic of how their balances change
black investor A, red investor B.
In your example investor A has increased his deposit 4 times and investor B 3 times (with same 500k current investment). Anyway, the calculation was wrong.
In your case B, the investor is also left in a kind of priligy position, because the second time around he avoids the drawdown completely. If you want to use compound interest, additional modelling is required. Vince has already calculated it all for a long time, you can read it and understand that 100% goes far beyond the effective f limit.
Increase the original scheme by one unit of risk start_balance - plum - plum - profit. And Investor B will be left with nothing at all, while Investor A will retain at least some capital.
It's very simple - a 100% drawdown will happen faster than a 200% return. It's the law of life.
In your case B, the investor is also left in a kind of priligy position, because the second time around he avoids the drawdown completely. If you want to use compound interest, additional modelling is required. Vince has already calculated everything a long time ago, you can read it and understand that 100% goes far beyond the effective f limit.
But we are not talking about "effective f" but about the question if the whole risky amount should be deposited with the brokerage company / brokerage company or should be separated. As in the case of investing - should you freeze the extra dough?
The question here is not about efficient f, but whether you should keep the entire risk amount in a deposit with a broker/dealer, or keep it separately.
In fact, compound interest (f) and risk are closely intertwined, and more accurate modelling is required for a correct calculation. One could bother with such a test, but so far there is no desire to do so. Personally, I doubt very much that it is possible to assemble a portfolio of elements each with a risk of 100% of the amount given to it.
It is even a law of mathematics. The probability of getting anything like a maximum drawdown of 100% is much higher than getting a 1000% profit. The problem is that you can only have a 100% loss once and that time will always be the last.