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Yes, that's essentially what I am looking for: not the maximum growth rate, but the growth rate which yields maximum utility with respect to some sensible utility function.

Correct. The Kelly properties (such as 10% chance of 90% drawdown, for example) are derived from the infinite horizon. rvince99, are you Ralph Vince? Thanks for the reference, I'll take a look.

Yes. More precisely, the reward (gain) is measured as log(R), where log() is the natural logarithm, R is the total return over the entire period.

If you trade (or invest), it means you use leverage. It may be less than 1, but it's still leverage. Leverage is simply the market value of your position divided by your account size. For example, if you have $10,000 account, and buy 10 shares of Apple at $100, then your leverage is (10 * $100)...

This has been well studied. Indeed, for full Kelly leverage (the red point), there is 10% probability of a 90% drawdown. That's why I want to move to the left of the curve.

Exactly right. The question is, how far to the left of the red dot is enough? That's what I am attempting to quantify. I'll see what I can do by adding some noise, as you suggested. Aside from this, the green dot is so far my best estimate of optimality. The steep cliff is universal (i.e. it...

This sounds right for the discretionary trading, but my trading is fully automated. So, I really have no "say" while the system is trading. Thus is the importance of optimizing the risk/reward *before* the system starts.

Correct. Yes, I am well familiar with both Kelly criterion and Vince's optimal f (which is based on Kelly). On the chart, the red point identifies the "full Kelly" bet. As most traders (and academics) came to realize, full Kelly bet is way too aggressive (in fact, it's borderline irrational...

Technically, yes, because on that curve, the reward-to-risk ratio is monotonically decreasing, as you move to the right. Essentially, it prescribes taking zero risk (i.e. no trading at all), which is a conundrum, because clearly, the risk is worth taking, as the reward is far greater than risk...

Okay, I have an idea, illustrated below. The steps to find the optimal point are: 1. Make an identity line (thick red line) from [0,0] to the point of max gain. 2. From the risk/reward (blue) curve, drop the perpendiculars down to the identity line. 3. Find the longest perpendicular (thin...

The chart reflects the performance of the system as a function of risk taken. This already accounts for the win/loss probabilities and drawdowns.

After looking at my chart and thinking about it, I realized that what I want to do is to identify the segment of the curve which corresponds to the most extreme North-West. So, my thoughts are now back to the tangent line of some sorts.

I should have posted the entire curve, see below. The reward drops sharply and irreversibly to the right of the red point. Thus, a small error around the red point would cause the reward/risk to collapse. So, we want to be somewhere to the left of the red point, but how far to the left? The...

Suppose you have the risk-reward curve as shown below. Intuitively, I feel that the optimal point on that curve is somewhere at around risk=0.2, as labeled. My question is, what the mathematical way to determine this point? My guess is that it would involve calculating some kind of tangent line...

The OP's assertion that "whipsaws suck of course" indicates that he/she is convinced that trend following is the only way to trade the markets. The trend following misery is the mean reversion glory, and vice versa.

One trader's misery is another trader's glory. Think about that for a moment, and perhaps you will know what to do.

I've just watched the movie and enjoyed it. The performance by Christian Bale as Michael Burry was particularly great, and intrigued me so much as to prompt me to look up what Michael Burry is doing these days. Looks like he is running Scion Asset Management: http://scionasset.com/ This web...

Yes, I understand the concept of setting the "constant net asset value", but it's still not clear to me whether the calculated returns are adjusted for it, or not. Let's take your case. Suppose that as of Dec 31, 2015, your actual account balance was £600K. FS says that your monthly return for...

I've opted to use "Net Liquidating Value" instead of "Constant NAS", so my 254M% return still does not make any sense. Your account size of $2,126,450 does not make sense, either. As you've identified, it's £600K. Even when adjusted for currency, it's still wrong. I understand from your...

They got back to me, so we are talking. I find it a little unsettling that they still have the elementary things wrong. For example, here is the cumulative returns chart for my account: Clearly, this chart wants you to believe that I made 254 million percent gain in 3 days! Yeah, if I am so...