One thing I have noticed with high win rate systems is that the equity curve has the tendency to look like the stockmarket, i.e. slow steady climbs up punctuated by steep rapid declines followed by slow steady climbs up.
Whereas the opposite is true for low win-rate systems, with a tendency to look like the VIX, which tend to have curves which slowly decline punctuated by large upmoves.
Now I have come up with my own ways to deal with low win-rate systems, not so much using position sizing but simply not participating in those systems unless conditions are good for them.
But I would like to hear thoughts and have a discussion on how to better size trades in high win-rate systems to smooth out the curve. Because it's clear to me that a lot of alpha is "wasted" regaining new highs in equity after one or two consecutive losers, and it seems to me the primary reason is equal position sizing for all trades.
One simple idea I had would be to size down based on consecutive winners of a "simulated" system which takes all trades e.g.:
0 consecutive wins: 1*R
1 consecutive wins: 0.8*R
2 consecutive wins: 0.6*R
3 consecutive wins: 0.4*R
4 consecutive wins: 0.2*R
5 consecutive wins: 0*R
obviously the above "table" would vary depending on your "projected" norm of consecutive winners, if you project to normally have 10 consecutive winners before a loser then you might size down 10% per consecutive winner.
This is probably a bad idea somehow, which is why I thought we could discuss it. But off the top of my head, I don't mind sizing down on consecutive wins because one fully sized loser might wipe out 3 or 4 wins anyway.