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I submit that calculating expected return over expected squared return is at least as simple as first calculating average win, then average loss, then win-rate before finally plugging them all into the 2-outcome formula. In a spreadsheet, you can do SUM(...)/SUMSQ(...) in a single step. :)

"... we use only the most robust and assumption free statistical tests, We have an aversion to summary statistics that obliterate important structural elements. For assessing systems, we use a technique called bootstrapping so that the complete distribution of past outcomes can make itself felt...

OK but as I tried (unsuccessfully :( ) to point out in Example 2, simplifying even a 3-outcome situation to a 2-outcome situation can lead to miscalculations. This is a prime reason why so many traders have tried and failed to successfully use Kelly in their trade management: trying to...

You're welcome :)

I have no idea where this version of Kelly comes from but to each his own. :)

It really pays to know where these dire predictions you're quoting come from. Btw I read the same thing in wikipedia: The probability of reducing your account to 1/n with Kelly betting is 1/n. Here's the whole story: that figure comes from the probability formula I posted above and it is...

The formula for risk from Kelly betting comes from one of the blackjack sites by Don Schlesinger: Prob[A reaches yA before xA] = [x - 1]/[(x/y) - 1] where A is the starting bankroll ; x is any positive multiple ; y is any other positive multiple. So the probability that you double...

Here's a primer for those traders who are confused abut Kelly sizing. You have a trading strategy that you want to evaluate. Naturally you'd want to perform a backtest. For the first test trade, you put forth an amount of money t1 into your favorite trade instrument, and at the end of the...

Holy crap! It's Gordon Gekko Junior! :D ... bored now.

What I find fascinating is how many times the Kelly formula has been completely mistated, thus "justifying" the Chicken-Little screaming that using it will blow up your account. :D

The Predictors ?? :D

Some of us can do both at the same time. :cool:

You're off your meds. That wasn't covered before I posted it. Clearly further attempts at communication with you are pointless. Have a nice day :)

The DETECTION of the edge is dependent on other variables, specifically, money management. Look, all we're talking about is the difference between arithmetic growth and geometric growth. If you choose arithmetic growth, fine, you'll find an edge if there is one AND your trade size is...

Exactly my point. :D Apparently there is some semantic disagreement here on what is meant by "position sizing." My point is that your results are dependent on what you assume as the trade size when you test for the edge. As the wrong-odds coin-flip scenario illustrates, assume the wrong...

BTW, this paper was not proofread. In the above passage alone, you can see a missing word ("is") and a missing right parenthesis. And in the abstract, they misspell "complement" as "compliment". Publish or perish, indeed :D :D :D

Great post, TD, but it won't register with him. He thinks he can play the peer-review card even when faced with specific evidence that the TA study methodology is flawed. It's like a prosecutor trying to defend a guilty verdict even when later DNA testing shows that an innocent person was...

I think you mean poem plagiarizing "skills". http://www.online-literature.com/yeats/780/

Speaking strictly for myself, here's my agenda: I believe whatever untainted evidence indicates. Emphasis on untainted. I was willing to believe the TA studies about the uselessness of classical TA until it was brought to my attention that most (all?) of the researchers have seriously...

Talking out of your ass doesn't make you a smartass, it makes you a dumbass. The fact that you can't - yes, CAN'T - explain how you supposedly test for a trading edge without consideration of position size makes you nothing but a fool with delusions of cleverness. :D