To calculate ( f ) for a trading system, you must analyze the historical sequence of profits and losses (HPRs - Holding Period Returns). You find the fraction that, when applied to the worst-case loss in the sequence, yields the highest Terminal Wealth Relative (TWR).

Most traders think linearly: "I made $1,000 today." Vince forces you to think geometrically: "I made a 10% return today." If you lose 50% on a trade, you need a 100% gain to break even. Losses hurt exponentially.