A good way to establish how much profit you can make is to plot the overall % return of your overall strategy over time. (Obviously you have to use historic data to do this with all the disadvantages this brings but how else can you estimate anything?) This is a similar concept to expectancy as explained by Van Tharp.

Once the graph is drawn you then examine the maximum drawdown, perhaps this is 5%. Compare this to the maximum amount of money you are prepared to lose over a series of losses, say this is £10 000, then the maximum amount to invest is £200 000. (If you use 10% margin as reference then the equivalent figures would be 50% of total profit, still £10 000 loss and a maximum of £20 000 to invest/trade)

The result should be equivalent in risk terms whether you base it on margin or effective exposure, you are simply balancing profits with drawdowns. Of course we should be aware that the maximum drawdown could be far greater so ideally you should include as many years as possible in the analysis.

Drawdowns are really the basis behind how much profit you can make from a given strategy since if large this can impose a limit on the profitability due to the periodic erosion of capital, or in most cases it is simply the psychological loss limit you are prepared to accept