Consider These Two Trading Strategies...

[Pension_Admin]

What about execution costs? Cost of borrowing in the case of leverage? Frequency of the trade?

What about the expected variance?

 

[Visaria]

No you have more risk. You're more prone to be ruined with A than B.

no, at the respective kelly or half kelly bets, the risk of ruin is the same for each strat. Same goes for 50% drawdown etc

 

[kut2k2]

On Paper Ok.
But in Practice, Especially Full Kelly, I'll bet on your Quick bankruptcy with A.

For purely binary outcomes there is no risk of bankupcy. It is only when multiple-outcome scenarios are "condensed" to the binary case that bankrupcy becomes an issue, because the estimated Kelly fraction is almost always oversized.

For multiple-outcome scenarios, you'll get a better Kelly estimate here:

http://www.elitetrader.com/et/index.php?threads/a-new-kelly-formula.291307/

 

[K-Pia]

Kelly Adjusted,
With a risk of 2 for A (Blue)
With a risk of 1 for B (Magenta)

If I look at the payoff then B's better.
Luckily we are free to choose.
Gentlemen, my last words.

 

[K-Pia]

For purely binary outcomes there is no risk of bankupcy. It is only when multiple-outcome scenarios are "condensed" to the binary case that bankrupcy becomes an issue, because the estimated Kelly fraction is almost always oversized.

For multiple-outcome scenarios, you'll get a better Kelly estimate here:

http://www.elitetrader.com/et/index.php?threads/a-new-kelly-formula.291307/

http://www.fooledbyrandomness.com/barbell.pdf

 

[Xela]

I agree that on paper A is superior.
But in practice I'd choose B.

K-Pia, I intend this helpfully, not critically, and am accordingly wording it as tactfully as I possibly can, but your time would really be far better spent reading an introductory trading/statistics book (such as Michael Harris's Profitability & Systematic Trading, which would really be very helpful to you), rather than continuing to defend here your rather idiosyncratic perspective on this subject.

 

[Visaria]

i want to explore this topic more in terms of impact on account size and leverage. Maybe later today or tomorrow.

 

[Xela]

Since Markets ain't gaussian.
Therefore Harris = Bullshit.

I wish I had your perspicacity, to be able to dismiss a well-recognised textbook as "bullshit" without reading it. That attitude's going to make learning anything close to impossible for you, because you're too busy trying to "be right": I strongly suspect that your realistic trading will begin only after you've changed it ... if you ever do.

 

[Visaria]

http://www.fooledbyrandomness.com/barbell.pdf

im gonna read this later, ta

 

[lostman007]

Strategy A has 60% win rate, 1:1 reward/risk
Strategy B has 40% win rate, 2:1 reward/risk

You can only choose one strategy. Which one do you pick?

I've use both kinds of strategies in the past, and for me it come down to 20% more winners, so I would choose strategy A. This is the kind of strategy I have now. the reasons why 1) because that is the only way you can trade against HFT systems, 1:1 risk/reward and a 60-65% win strategy to give you the edge. 2) The most imported reason I do it is to build my confidence (Trade your plan, not to make money). I been doing this a very long time and the one thing you will need everyday of your trading life will be confidence.