Size's more important than entry points.
What you need to know to size up:
- MLS : Max loosing Streak
Knowing that the future ain't shiny,
You're allowed to multiply it by x>=2
- MP : Maximum pain
How much are you willing to lose ?
0,25 % of your capital ?
0,5% of your capital ?
If 0,75% then
MP = 1-(1*0,75)=0,25
What you will know:
- z*100 : How much you can bet (%)
According to your worst case (MLS)
and your MP threshold
Solve for z
(1-z)^{MLS}=MP
Exemple:
-MLS = 20*3 = 60
-MP = 1-(1*0,5) = 0,5
(1-z)^{60}=0,5
z = 0,011*100 = 1,1
So I can bet 1,1% of my capital without going ever broke ! If my implied MLS is strictly inferior to my future realized MLS.
Otherwise there is the Kelly Criterion !
What you need to know to size up:
- MLS : Max loosing Streak
Knowing that the future ain't shiny,
You're allowed to multiply it by x>=2
- MP : Maximum pain
How much are you willing to lose ?
0,25 % of your capital ?
0,5% of your capital ?
If 0,75% then
MP = 1-(1*0,75)=0,25
What you will know:
- z*100 : How much you can bet (%)
According to your worst case (MLS)
and your MP threshold
Solve for z
(1-z)^{MLS}=MP
Exemple:
-MLS = 20*3 = 60
-MP = 1-(1*0,5) = 0,5
(1-z)^{60}=0,5
z = 0,011*100 = 1,1
So I can bet 1,1% of my capital without going ever broke ! If my implied MLS is strictly inferior to my future realized MLS.
Otherwise there is the Kelly Criterion !