Kelly Criterion & Risk Of Ruin As Risk Management Tool

nonlinear5 said:
Paul Samuelson actually advocated against using the Kelly Criterion. That's what made the use of the Kelly Criterion controversial in the academic circles.
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Yes, from what I read. But Nobel Laureate can be wrong too.

Best to you.
 
Mtrader said:
Let me guess... you are not speaking about yourself. You are the REAL "expert".


But that's what everybody thinks of himself.
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Again, don't be too critical, he is right. I followed both your posts and I think both you and MrScalper are experts we can learn something from.

There are many real professionals and experts here but also a few not quite knowledgeable. It is up to us readers to filter out the noises.

Regards,
 
ironchef said:
When I was in the Pascal mode, 100% of my tradable asset. Now, 10%. As for the other question, my longs are limited losses and my shorts are hedged or covered.
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That is not the answer..do you know what your max drawdown can be?
 
ironchef said:
MrScalper,

I found an interesting research paper on Kelly, in it was this quote by Paul Samuelson:



Not unlike the situation encounter by a day trader or option trader. So what is a trader to do? Well, according to Kelly criterion, here is the Kelly answer:



View attachment 175338

I used to trade like Pascal then intuitively reduced the size of my trade but Kelly will provide me a framework to find a criteria/size that is reasonable and that I am comfortable with.:finger:

Next assignment for me is chart reading.:D

Best wishes.
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No real use to the retail trader!

Simple spreadsheet will suffice.

All the risk management in the world will be of no benefit if you do not learn what is required in order to profit in a very challenging game!

You must seek out, find, understand and be able and willing to implement what is required.. otherwise the chances of making any money worth talking about are zilch!
 
ironchef said:
No.

2002-03 and 2008-09 were very painful years for me but I survived.:)
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So..you admit that you do not know your worse case scenario..that is very dangerous.

Some years ago I made a good deal of money with options trading..and like you I started to over-trade!

One day I found myself looking at the ES market depth in a lock limit down market..it was an experience I will never forget..and it cost me a good deal of money..but..mostly due to panic..so..make sure you know "exactly" what you need to do when..not if..the shit hits the fan :)
 
MrScalper said:
So..you admit that you do not know your worse case scenario..that is very dangerous.
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There is no certainty in trading, so nobody knows their worst drawdown.

The only way out is to put fix stops and a max of losing trades in a row you accept, and even then you are no sure.

Your biggest drawdown is the biggest till a bigger one appears.
 
Mtrader said:
There is no certainty in trading, so nobody knows their worst drawdown.

The only way out is to put fix stops and a max of losing trades in a row you accept, and even then you are no sure.

Your biggest drawdown is the biggest till a bigger one appears.
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Not correct..if you buy options your max loss is the premium you pay..no need to extrapolate!

Daytrading also allows an astute trader limit losses.. unless of course he is a "daydreamer" :)
 
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