Kelly Criterion & Risk Of Ruin As Risk Management Tool

[MrScalper]

Always be aware that anything can happen when trading!

GILD can go sideways..up..or down..no one knows for sure and the only thing we can do is control our risk!

Let's see where it ends by Fri 14th ?

DO NOT change your plan based on what I post..as I really haven't a clue where GILD will be by Friday !!!!!!!!!!!!!!!!!

 

[ironchef]

Does this mean you are still long the Jul14'17 64.50 Call from $1.50?

What makes you think GILD will not pull back more before expiry..and why are you so certain that you will be able to use the "proceeds". Do you know something that we don't?

Yes, a paper profit of ~$3.4 per share as of today.

No I don't. I read the same news, read the same 10K, analyst research, annual reports as everyone. Maybe I dig a little deeper, reading up on clinical trial of their pipeline drugs, their lawsuit....

 

[ironchef]

Always be aware that anything can happen when trading!

GILD can go sideways..up..or down..no one knows for sure and the only thing we can do is control our risk!

Let's see where it ends by Fri 14th ?

DO NOT change your plan based on what I post..as I really haven't a clue where GILD will be by Friday !!!!!!!!!!!!!!!!!

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Questions for you MrScalper:

From the daily chart, in real time, could you see any sign the stock would pop/gap up?

For me I had a target of $65 from fundamental and when I saw thing stayed at ~$65 for almost a month, I thought that meant it might be bottom so I moved.

Or, say today going forward can you tell if the price would go up or down from reading the chart?

Thanks.

 

[MrScalper]

Questions for you MrScalper:

From the daily chart, in real time, could you see any sign the stock would pop/gap up?

For me I had a target of $65 from fundamental and when I saw thing stayed at ~$65 for almost a month, I thought that meant it might be bottom so I moved.

Or, say today going forward can you tell if the price would go up or down from reading the chart?

Thanks.

A chart can not predict the future..no matter how hard one tries..how can it!

What one can do..is try to see what some of the big players are doing..and what they might be thinking..but..as people change their minds very quickly..and thus can act differently..it really can be hit and miss..BUT..certain things can yield better results than others when acted on..so..the key is obviously in your ability to act on relative information..like you did not do when the option premium peaked at over $6 or so.. can't remember exact peak figure..but why did you not react..are you the greedy type..or where you not following the market.. either way it is bad trading!

 

[MrScalper]

Yes, a paper profit of ~$3.4 per share as of today.

No I don't. I read the same news, read the same 10K, analyst research, annual reports as everyone. Maybe I dig a little deeper, reading up on clinical trial of their pipeline drugs, their lawsuit....

The OI for that strike is 15 contracts..so you are not holding any more than that

Closer to expiry means faster time decay..yes!

Break even point is around $66..yes?

Current price is $69.29..yes!

What is your plan for today..or do you plan to do nothing and hold till expiry?

 

[ironchef]

A chart can not predict the future..no matter how hard one tries..how can it!

What one can do..is try to see what some of the big players are doing..and what they might be thinking..but..as people change their minds very quickly..and thus can act differently..it really can be hit and miss..BUT..certain things can yield better results than others when acted on..so..the key is obviously in your ability to act on relative information..like you did not do when the option premium peaked at over $6 or so.. can't remember exact peak figure..but why did you not react..are you the greedy type..or where you not following the market.. either way it is bad trading!

The OI for that strike is 15 contracts..so you are not holding any more than that

Closer to expiry means faster time decay..yes!

Break even point is around $66..yes?

Current price is $69.29..yes!

What is your plan for today..or do you plan to do nothing and hold till expiry?

So, I cannot use charts to predict or forecast the future price move?

I still cannot see how charts can tell me how the big players play. For the life of me I could not tell - All the after the fact chart reading (e.g. AAPL and BRK buying, they hided a $10B purchase well). Anyway, I will continue to stare at charts for the foreseeable future because I do believe the info are there, just like in communication theory, one can apply filters to filter out the noise and find the very weak signals.

In any case, my sense is there are two type of traders: those using qualitative and intuitive methodology and those used quantitative. For me, I have to quantify before I move and I don't know how to make quick moves, being deliberate all my trading career.

As for GILD, I need to think through, make my analysis then move. I am not going to discuss what I do and how, why I make my move but I think the odds are in my favor that I will come out ahead.

Thank you for your coaching especially patiently took the time to answer my questions.

Regards,

 

[ironchef]

I do want to bring this thread back to Kelly as I think lots of you folks are using Kelly and seemed to believe in it and it seemed to do the job for you. Thank you for the coaching.

Personally I benefited from understanding Kelly and I am now able to quantify the risk level I should undertake and so far using it based on my trading outcome seemed consistent.

To MrScalper, I appreciate your comments but I believe Kelly do have a place in a small retail trader's (me) bag of tricks.

Risk management is counter intuitive for someone trying to maximize returns. But my frustration in the past with risk management was most I read here on ET were qualitative, hand waving and no one could explain how to manage risk other than general statements like don't risk more than 1% of your asset on each trade, trade small and trade often (tastytrade), risk management is THE ONLY EDGE....

The reason it did not make sense to me was no one could tie it to returns, win rates, R:R... If my trading success is 50:50 and R:R 2 - 1 my risk level is definitely different than someone at 70:30 and R:R 10 - 1. It just does not seem right that both use 1% risk capital?

Special thanks to nonlinear, comagnum, globalarbtrader, HobbyTrading for your insights. My guess is you are all professional traders. nonlinear, from your name you must be an option trader and you understand convexity.

MrScalper, thanks for bringing up an alternative view point.

Further comments, suggestions are welcome.

 

[HobbyTrading]

Special thanks to nonlinear, comagnum, globalarbtrader, HobbyTrading for your insights. My guess is you are all professional traders.

Thanks for your kind words. I don't know about the others you mention (except @globalarbtrader), but I'm not a professional trader and never have been. I tried to select an appropriate handle name.

 

[ironchef]

Always be aware that anything can happen when trading!

GILD can go sideways..up..or down..no one knows for sure and the only thing we can do is control our risk!

Let's see where it ends by Fri 14th ?

DO NOT change your plan based on what I post..as I really haven't a clue where GILD will be by Friday !!!!!!!!!!!!!!!!!

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Today:

I think it is bullish going into Friday but I am just guessing and follow TA talk that says there is "support" at $69+? But how do I know if the big guys are buying?

 

[ironchef]

Thanks for your kind words. I don't know about the others you mention (except @globalarbtrader), but I'm not a professional trader and never have been. I tried to select an appropriate handle name.

I am small retail but I am trading options full time meaning I have no other jobs that keep me occupy.

Fun but very very very challenging. I try to incorporate things I learn into my trading tool kits.

Most of all, I avoid trading with/against the pros.

Regards,