I thought of making one study. Where in a hypothetical investor performs the trade using any decision making tool (SYSTEM).
Here I have defined few things
Strike rate : number of profitable decision to total number of decision.
Stop Loss : Avg % of investment lost while decision goes wrong (Assumed 5%)
Avg Profit : Avg % of profit earned while decision goes right. (Assumed 10%)
I have tried few cases where initial investment is 10000/- strike rate is 1 of 4, 1 of 3, 1 of 2, 2 of 3 and 3 of 4 and last case is that the investor learns few tricks and then he matures so that his strike rate improves.
The results are as under after 56 trades:
1 of 4 10000 becomes 4404
1 of 3 10000 becomes 9167
1 of 2 10000 becomes 34297
2 of 3 10000 becomes 128315
3 of 4 10000 becomes 267069
Maturing investor makes 34297
You can play with following xls file to simulate different conditions.
Enjoi
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