I have tested many different trading strategies 100 times over the years on the Trading Rush Channel.
My social life now consists of candle patterns and Excel sheets.
But in the last video, I tested different ways to grow the account even faster.
Some of those rules grew the account really, really, really fast.
So, I got curious and wanted to see if bad or average strategies I have tested can make more profit than the best strategy I have ever tested.
I mean, in the beginner trading days, it’s difficult to get a high win rate because we lack experience.
But what if we didn’t need a high win rate to make good profits?
What if a low win rate crappy strategy could make the same or more profit than the best win rate strategy?
That’s what I’m going to find out because beginner me around 8 years ago would have found this data extremely helpful.
I’m going to run 4 tests.
In the first test, I noted down the profit percentage gain of pretty much every strategy I have tested 100 times on the Trading Rush Channel.
This is what it looks like on a chart.
Bigger box means bigger profits.
The strategy name and win rates are at the bottom of the box.
In most of the testing videos, I tested these strategies on the Euro JPY forex pair on the 30min timeframe.
If I ran out of candlestick data, then I used the Euro USD pair.
Like a good boy, I always set the risk per trade to 1% of the starting account.
And booked 1.5% profit per trade.
In other words, I used a 1.5 to 1 reward risk ratio.
The breakeven win rate, or the win rate where profit loss is 0 with this reward risk ratio, is 40%.
And as you can see on this chart, that point is right here. That box is flat.
All strategies above this point made a profit, and below it made a loss.
Every single test I’m going to do next is supposed to increase the profit by using the fast account growth rules we found in the previous video.
But when I started to do that, I faced a big problem.
One of the rules that grew the account fast in the last video was the Turtle Method compounding rule.
But the Official Trading Rush BackTester App I have used to test pretty much all strategies didn’t have a compounding feature.
I mean, I’m lazy. I still want to test strategies by one or two buttons and want the rest of the calculations to happen automatically, including compounding math and all.
So, I spent around a month officially adding the fast account growth compounding method in the Free Trading Rush BackTester Web App.
I also added another feature called “Use Percentage Profit Loss” so we can add profit loss in percentages like 1 or 2% instead of amounts like 100 or 200 dollars.
This is really important for the turtle compounding method.
If you have never heard about the turtle method, it was taught by multi-millionaire traders, Richard Dennis and William Eckhardt, in the 1980s to a group of beginner traders.
These beginner traders ended up making more than 100 million dollars in total.
I have a video on this story on the Trading Rush Channel.
Check it out if you want to learn more.
Basically, the compounding rule is to use a percentage of the current account balance to take the next trade instead of the starting or any other account balance.
If you risk 100 dollars on each trade, don’t do that, use 1% of the current account instead.
Keep the percentage consistent instead of the dollar amount.
If the account grows, using 1% of the current account will automatically increase the dollar amount, and when the account drops, still using 1% will automatically reduce the dollar amount.
When I tested this turtle compounding method in one of the previous videos, it actually increased the profit and reduced the probability of blowing up the account.
Since we have to use a percentage of the account in this fast account growth method, that’s why the percentage input feature in the Trading Rush BackTester App is important.
But then I realized I had an even bigger problem.
In the first test, I just noted down the profit percentage of all the strategies I have tested 100 times.
That’s more than 5000 trades in total.
But to apply some of the turtle compounding and other fast growth rules in the next tests, I will have to once again find and take more than 5000 trades.
I don’t want to lose my last two brain cells by testing them again.
That’s like taking more than 20 trades every single trading day for an entire year.
Or taking 1 trade a trading day for more than 20 years straight.
My hand left my body just by thinking about so many trades.
Most of the strategies I have tested use a pullback stop-loss as it’s the best in most trends.
But the pullback stop-loss is really difficult to set consistently using a script.
So I can’t even automate the testing.
I will have to manually take more than 5000 trades.
So, after delaying the video for multiple months, I had another idea that was slightly less pain in the butt.
With the percentage input and compounding settings enabled in the new Trading Rush BackTester Web App, I will go to every strategy testing video I have made, play it in slow motion, and copy each trade profit loss result more than 5000 times.
With all the setup done, I started test 2 with a smile on my face, only to realize it’s not 5000 trades, it’s 15000.
I have to take more than 15000 trades in total because it’s 5000 per test, and I need to do 3 more tests.
My laptop started a “GoFundMe” for a vacation.
But before it could book a flight ticket, I realized that once I had tested 5000 times in test 2, I could use math to get the data of the remaining tests.
It’s just multiplications and other math after all. Said the guy who still uses fingers to count.
So, that’s what I did.
I looked at my own videos more than 50 times, took 5000 trades, and then used math to get the data of the remaining trades.
This was the profit chart of test 1 that took 100 trades with 1% risk per trade, 1.5 to 1 reward risk ratio, and without compounding.
Now, this is the profit percentage of test 2, where the turtle compounding method was used, and all other rules remained the same.
But here’s something funny I found.
The turtle compounding method is supposed to increase the profit and reduce loss according to data, right?
And yes, it did increase profit for good win rate strategies and reduced loss for bad win rate strategies.
But for strategies that had a near breakeven win rate, the turtle method actually made a lower profit compared to not using compounding at all.
That’s right, compounding made lower profit if the win rate was near breakeven.
The turtle method is too cool to help mediocre win rate strategies make more money.
Strategies that only had a 5% or lower win rate edge performed worse with the compounding rule.
A similar thing happened on the downside.
Turtle method is supposed to reduce loss if the win rate sucks.
But strategies that only slightly sucked, like had 4% lower win rate than the breakeven point, made bigger losses with compounding method.
So, the turtle compounding method does a really interesting thing.
It greatly increases the profit and reduces the loss only if the win rate is really good or really bad.
If it’s slightly good or bad, then it sucks.
It has this V curve.
It sucks in the middle near the breakeven win rate, but gets better after around 5% higher or lower win rate.
Go big or go home applies here.
Remember, this is with a 1.5 to 1 reward risk ratio.
The 5% number might change slightly with different reward risk ratios.
So, from test 2, we learned that if you are not making or losing big amounts of money in trading and are staying near breakeven, compounding rules can make you lose money slowly.
If you are wondering why this happens, here’s a quick example.
In a non-compounding scenario, if you use a 1.5 to 1 reward risk ratio with a 40% breakeven win rate strategy, after 2 wins and 3 losses, you are exactly at the breakeven point.
You have not made a profit or loss, assuming there are no brokerage charges.
But when you use the compounding method, that is, using 1% of the current account balance to take the next trade, after 2 wins, your account has increased.
Now, the 1% risk of the current account is higher than before in dollar amounts.
After losing 3 trades next, you actually end up with a small loss in total.
If you start with 3 losses instead, then your current account balance becomes smaller.
Now, 1.5% profit of the current account is smaller than before in dollar amounts.
After winning 2 trades next, you still end up with a small loss in total.
When the win rate is around breakeven, this pattern will happen more often.
And that’s why the compounding performs badly near breakeven win rates.
But in test 3, I increased the risk per trade to 2% while keeping the compounding on and the rest of the rules the same.
This immediately increased the profit of many strategies by a big amount!
In the first test, the highest win rate strategy I tested made a profit of 55%.
But in test 3, with the turtle compounding method and 2% risk, the profit didn’t double, it was almost 3.5 times higher.
That’s just by applying 2 fast account growth rules.
Strategies that had win rates just above the breakeven, like 45%, made around 2 times more profit than the first test.
On the other side, the worst strategy I have ever tested increased its loss by 1.8 times.
Overall, the profit increased much more than the loss.
But then in test 4, I increased the number of trades by 2 times.
There are two ways to double the number of trades.
One way is to take more trades in a given time period, like two trades in a week instead of one.
The other way is to increase the time horizon 2 times, like 2 months instead of 1 month.
Taking more trades will obviously make more profit in a short period of time, but if the strategy or market doesn’t give many good opportunities, then increasing the time horizon is always an option.
When I used 2% risk per trade with 2 times more trades and with compounding on, the profit was not 2 times higher, it was almost 4 times higher than the previous test.
That’s right, when you increase the number of trades by 2 times, the profit doesn’t increase by 2 times, it increases by around 4 times for high win rate strategies.
So, if you take 1 trade in a week, and figure out a way to take another good-quality trade in a week, the profit has the potential to be 4 times higher for just 2 times the work.
What’s even more interesting is that the profit of the 4th test is more than 13 times higher than the first test that didn’t use compounding or any of the fast account growth rules.
But here’s a plot twist.
I actually calculated data for 35000 trades in total.
Originally, I did 7 tests but later removed 3 as they were kind of boring.
But now I realize that one of those tests does show something important.
Earlier I said that the compounding kind of sucks near the breakeven point.
In this chart, it doesn’t seem to be sucking.
It’s making more profit and more loss.
It doesn’t have that V curve.
Well, that’s because it’s not showing the non-compounding 200 trades test.
So, if we add the non compounding data to the chart, we can see that, yes, the turtle method compounding still sucks near the breakeven win rate.
It performs worse than the non-compounding rule.
Still, when the win rate is good, it not only makes a very high profit, but it also reduces the loss when the win rate is really bad.
But do you want to see something really interesting? With all the growth rules applied, how much do you think the profit increases if the win rate goes up by only 1%?
The 45% win rate with growth rules made a profit of around 55% in the last test.
But when the win rate increased by just 1%, the profit was around 71%!
From 55% to 71%. That’s a lot of extra profit for just a 1% higher win rate.
And the best part is that getting a 1% higher win rate is not that difficult.
For example, if there is a good support area nearby, setting the stop-loss below it in a long setup will most likely increase the quality of the trade as the price has a higher probability of reversing from that support according to data.
In my around eight years of trading experience, these kinds of higher quality setups have a higher probability of increasing the win rate.
I have made multiple videos on the Trading Rush Channel and Website that show ways to increase the win rate.
Check them out if you want!
But I started this video with a big question.
Can a bad or average win rate strategy with fast growth rules make more profit than a high win rate strategy that is not using growth rules?
Well, if we look at just above breakeven win rate, such as 45%, we can see that with fast growth rules, it makes pretty much the same profit as a high 62% win rate strategy that was not using fast growth rules.
In fact, with fast growth rules, a 45% win rate makes more profit than almost all strategies that didn’t use fast growth rules in test 1.
So, yes, a beginner trader that is struggling to get a high win rate can make a good profit with the knowledge of turtle compounding and other fast growth methods we have seen in this and previous videos.
Now, if only I could send this data video around 8 years in the past to my beginner self.