SCOTT WELSH TRADING BLOG

A Real Look At Aggressive Account Growth

A Real Look At Aggressive Account Growth

June 10, 2020

We’ve seen the advertisements.

“Turn $10,000 Into a Million!”

It’s exciting, yes? And also depressing.

Because we know it has to be a marketing trick. And most of the time, it is.

But here’s a real backtest I ran this week. I started with a hypothetical $10,000 account, used the Dragonfly trend following robot on the GBPJPY, and utilized very aggressive trade sizing while keeping it within the margin limits here in the United States.

Also see it here.

Incredibly, a $10,000 account has turned into $7.7 million.

That’s a real backtest with a sufficient sample size that has trading costs built in and trade sizing that will never go beyond what is actually possible.

This week, we’re going to break this down and see if it’s realistic or just another marketing trick.

Before getting started, we need to make sure we’re not using a ridiculous trade size. Someone from another part of the world might have access to a ton of leverage. If so, their backtest might be impossible for someone trading in the United States (with its annoyingly low margin allowances.)

In America, the maximum number of lots that can be traded on the GBPJPY on $10k is about 1.5, Other places might get more leverage than that, but 1.5 is the most we can have in the U.S.

So, for this test to be relevant, the first trade has to be less than 1.5. If not, it’s bogus.

Here’s the size of the first trade in the test:

See it here.

The first trade in the test uses only 0.49 lots. It breaks-even on the first trade and also the second. And then we see a loser. But all have the 0.49 trade size.

That means the beginning, at least, is legitimate. It’s possible to do what the test did in real life.

This is a very important point because this particular system increases the trade size as the account grows and decreases it as it falls. And it keeps the percentage of risk the same for every trade.

What does this mean? It means that if we have enough margin for the initial trades, we will always have enough margin for the rest of the test. Regulations could change in the future, of course, but, as of now, we could potentially take every trade the test takes.

But what about the max drawdown number? In the Report, it says the max drawdown number is $2.8 million. How could we suffer that when our starting account is only $10,000?

We talked about the answer last week. That $2.8 million drawdown happened long after we were in massive profit. In this case, the $2.8 million losing streak occurred when the account was over $7 million. It didn’t happen when we were at $10,000, it happened much later after a lot of profit.

So, how much did we actually suffer in this test?

The most drawdown we saw was $1,444. Our $10k stake only went down about 14% at the worst. After that, all drawdowns occurred after we were already in profit.

At first glance, there’s nothing egregiously wrong with these numbers. True, the $7 million profit is ridiculous but the beginning checks out. A normal person would have enough money to trade it and the max drawdown suffered on the original account amount is manageable.

So far, so good.

Talk to you soon.

 

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Disclaimer:
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.