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This strategy works well for stocks though you must know what you are buying and also diversify a little.

The intuition is simple. Imagine an ant that is moving with a speed of 2 meters per minute. If the ant is moving towards one direction (trending) you expect it to be at a distance of say 1.5 meters after one minute. If the ant is randomly wondering around (normal market) you expect it to be...

Using the simple way I described above, after a quick calculation and assuming I haven’t done a calc mistake :) Volatility using daily data 0.011942 (annualized 18.96%) Volatility Using Weekly data 0.024547 (annualized 17.70%) The market qualifies as mean reverting.

No, I guess I didn’t explain in detail what I meant. In a normal behaving asset if you calculate volatilities using daily and weekly or monthly data, theory says that it must be connected like this Volatility longer time frame = Volatility shorter time frame * sqrt(T) So taking into...

One simple method to test for trendiness is the variance ratios. For example if the adjusted volatility on an hourly sampled basis turns out to be higher than the volatility on a daily sampled basis , the market can be considered as mean reverting. If you are looking for longer term trends...

I really cannot understand what you are trying to say. I just show you above that from the formula in the Kelly paper g(f) = q log(1+f) + plog(1-f) you got the formula f* = q- p. If you had uneven payoffs a,b the Kelly paper’s formula becomes g(f) = qlog(1+af) +...

The two formulas are exactly the same. Page 2 of Kelly’s paper (the gambler with a private wire)… q Probability of correct transmission (win) p probability of wrong transmission Same payoffs for win and loss Growth Rate: G = q lof(1+f) + p log(1-f) Kelly criterion...

The theory behind the Kelly approach is one. Same inputs will result the same output. The question ‘which system is better’ will be answered with the same answer by anyone. The question ‘what is the best possible allocation between a number of correlated systems’ will be...

Yes I imply that in this example Kelly=90% so 1/10th Kelly is 9%. The fraction of Kelly you are going to use depends on many factors. First is how tolerant are you to drawdowns. For example there is 34% chance that you are halved before doubled if you are using 1 (full) Kelly. Other...

:) This was an answer to If you don't like the static framework there are papers on the net for a Bayesian dynamic updating of the Kelly optimal allocation. Anyway no-one can force you to accept as useful the idea of optimizing the median of your payoffs. I am convinced that this is the...

Hello I would like to add some comments to the above… The formula is not simple at all. Only if you assume a Bernoulli distribution for your trades it takes this simple form. Then why are we trading? Uncertain but quantifiable within limits. Nothing is 100% certain but you can...

No, this is a common misunderstanding but it is wrong. You can apply the Kelly criterion no matter what the distribution of returns. You can apply Kelly for lognormal, normal, uniform, triangular, discrete or whatever other distribution. You just don’t apply the same formula as in the...

:) No need for consulting services. It’s all there by Ed Thorp himself. http://money-management.martinsewell.com/Thor97.htm All you need is a few days to adjust this framework to your particular trading systems portfolio. It will help you to 1. Determine what are the best...

:) nononsense, this is the experience of one of the Kelly criterion users ... Quote from Ed Thorp How does the Kelly-optimal approach do in practice in the securities markets? In a little-Known paper (Thorp,1971) I discussed the use of the Kelly criterion for portfolio management. Page...

The question as posted here is not the same as the Monty Hall Dillema. In that problem it made sense to switch because that way you had a probability of 2/3 to win. In this case you must clarify if the examiner knows your guess and then reveals an alternative wrong solution. If not then the...

And a spreadsheet ...

'************************************************************ ' standard normal random variate * '************************************************************ Function gauss() Dim fac As Double, r As Double, v1 As Double, v2 As Double 10...

Yes, the example is for one open position because otherwise I had to make a long heavy on math post to explain the idea. For example for opening two positions the analysis is something like this. The conservative approach will lead us to allocate 0.1 Kelly in the above example so we would...

Regards

I use amibroker for some days now and it’s very fast compared to other software. I use the End of day version so I can’t comment on real time performance. It has an extensive online community that will answer on almost any problem. It has an easy programming language that is like...