Compounding versus fixed size for a scalper

[Amanhasnoname]

Compounding increases position size as the account grows, accelerating gains. Fixed size keeps risk constant in absolute terms. Each has implications for scalpers.

For strategies with limited capacity, compounding eventually runs into the size limit, where execution costs rise. At that point, further compounding reduces the edge.

In drawdowns, compounding with fixed fractional risk reduces size automatically, which protects the account but slows recovery. Fixed size recovers faster in absolute terms but exposes the account to higher relative risk after losses.

Psychology matters. Rapidly growing size can lead to anxiety about larger absolute swings, which may degrade decisions.

A hybrid approach compounds up to a cap based on capacity and comfort, and then withdraws excess profits.

Simulations with the strategy's trade distribution show the outcomes under each approach, including the probability of deep drawdowns and the growth rate.

The best choice depends on the edge, the capacity, and the trader's tolerance for variance.

How does the equity growth compare between compounding and fixed size in simulations of the system?