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backtesting - include profit in trading capital or not?

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San Diego, USA
 
Trading Experience: Intermediate
Platform: MC
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Posts: 48 since Aug 2016
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backtesting - include profit in trading capital or not?

Hello all,
When performing backtesting constant USD seems that is the right approach, rather than using constant shares/contracts count as price varies. However, is it appropriate to add net profits to the amount of initial capital applied to the strategy or leave it out and use the same initial capital amount through the backtesting? The results can vary substantially depending on the type of a strategy one is testing (profits follow profits or profits follow loss). Any suggestions, references to the books/articles that talk about it are welcomed.

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