Suppose a strategy has a 60% win rate, earns 50% on a win, and loses 50% on a loss. Sounds pretty good, right?
If you go all in every time, here’s the long-term result: 60% × 50% - 40% × 50% = an expected return of +10% per trade,
which looks positive. But consider the path: two losses in a row means a 75% drawdown, and you’d need a 300% gain to break even.
A positive-expectancy strategy + going all in = a high chance of going bust. This is the gambler’s ruin theorem
playing out every day in crypto.
Same strategy, but only putting 20% of your capital at risk each time: two losses in a row = -18%, barely a dent,
and you still capture the long-term expected returns. The strategy hasn’t changed—only your position size. That’s what makes the difference between survival and ruin.
Remember this inequality: your long-term returns ≈ your strategy's expectancy × how long you can survive. Position sizing determines
the latter. Only those who survive long enough can talk about expectancy.
What do you think? Share your experiences in the comments.