Yeah, but how do figure what a "maximum acceptable loss" is? What is the chance of it happening? You have to read the whole article. It goes into it in more depth.
The simplified example is just a basic real world look at how one would do the math and what kind of results one can get. I'm astounded. I kept thinking there was something the matter with what I was doing trading the YM. I wasn't getting the total dollar results I was expecting. And yet using real world numbers, I've been getting a 1000% a year return. I'm stunned.
I kept trying to "fix" it. Like something returning 1000% a year needs fixing. The only problem was the operator not realizing what he had. I kept holding back on increasing my size until I got the "bugs" out. I was afraid of a big loss. But now I know using real world numbers the chance of a big loss is 1 in 1000. I was worried for nothing.
Sure your win rate changing or the amount of your profits/losses will affect the results. But this gives you a way to see exactly what is going on. And it gives you tools to do what ifs and calculate the probabilities. And by keeping trading logs, and monitoring the statistics, you're always on top of whats happening.
So instead of holding back until I "fix" it, I can with confidence start to slowly increase the size I'm trading while monitoring the results. And if my hand turns cold and I get 3 or 4 losses in a row, I won't freak out. The math already tells me there will be days like that, and it's nothing to worry about.
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