I do know that I will take losses - that’s why I am doing all of this testing and not just diving in feet first.
The money management system I am using is the one in “Small-trader money management” by Thomas Stridsman (Active Trader, April 2006). I am testing that money management system against my backtesting data that I am generating which is how I am coming up with my profitability estimates.
The slowdown multiplier controls how fast position size is allowed to increase. With fixed ratio systems you eventually end up with huge position sizes. The slowdown multiplier controls how fast those position sizes are allowed to grow so that you are not trading 1,000 standard lots in a single trade.
The delta refers to the change in account equity. The system also takes into account the number of pairs being traded in the portfolio to ensure that total risk is appropriate. For example, if maximum risk is defined as 2% of account equity my spreadsheet will allocate the total 2% across all the pairs I am trading whether it be 1, 2, or more pairs so that in the event I have open positions in every pair in my portfolio my total maximum risk isn’t exceeded.
My losses are controlled with stop orders being placed when I enter the trade. For example, if I enter a short position after a double top I take a 113% Fibonacci extension of the leg leading into the double top pattern as my stop level. This may not be optimal but I don’t have enough test data yet to make a judgment call on that. The stop is placed as a limit order so that exiting my position at that level is mandatory. My trade rules do not allow me to enter an order without corresponding stop and target limit orders.
My goal is to do all my thinking before I take a position so that my responses once the position is on are nearly automatic, like how an athlete trains muscle memory.
Did that answer your question or did I misunderstand it again?