How much should you risk?

kut2k2

kut2k2

Here's a new puzzle for you optimal sizers.

Here's the scenario:

There is a 35% chance that you win 20% of your bet ;
There is a 25% chance that you lose 15% of your bet ;;
There is a 20% chance that you win 12% of your bet ;
There is a 15% chance that you lose 6% of your bet ;
There is a 4% chance that you win 50% of your bet ;
There is a 1% chance that you lose 100% of your bet.

What percentage of your betting account should you risk to maximize your potential gain?
 
kut2k2 said:
What percentage of your betting account should you risk to maximize your potential gain?
More...


I know it's not a helpful answer, or even the type of answer you expected, but "none at all", I think, looking at it superficially?

In the long run, its net expectancy is only 0.0575 units per unit invested, for a PF of 0.0575, isn't it?

Unless I've made a decimal point error, somewhere in my quick calculation, perhaps ... but I don't think I have? This isn't really worth trading, is it?
 
I'm not too big on being left brain/anal/numbers/formulas -- I'm more of a ...artist/philosophical trader, if that makes sense. (it works for me)

But what is the correct answer to this questionaire o_O
 
All things being 50/50 and only way you can alter that is though money management rules, I would go with "There is a 15% chance that you lose 6% of your bet"
 
kut2k2 said:
Here's a new puzzle for you optimal sizers.

Here's the scenario:

There is a 35% chance that you win 20% of your bet ;
There is a 25% chance that you lose 15% of your bet ;;
There is a 20% chance that you win 12% of your bet ;
There is a 15% chance that you lose 6% of your bet ;
There is a 4% chance that you win 50% of your bet ;
There is a 1% chance that you lose 100% of your bet.

What percentage of your betting account should you risk to maximize your potential gain?
More...

This problem was solved a long time ago via Risk of Ruin calculations using the Kelly Criterion.

Violate this at your own risk. This is why most retail traders fail. They lack this basic information and bet too large for the expected win rate of their system.

http://www.automated-trading-system.com/resources/risk-of-ruin-and-drawdown-calculation-tool/

http://www.albionresearch.com/kelly/default.php
 
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