Kelly Criterion & Risk Of Ruin As Risk Management Tool

ironchef said:
My long GOOGL options are quite profitable as of this morning. I am setting a mental stop if the underlying goes below $920 but will let the position develop because I think I see a pattern on the daily chart (or maybe just my imagination/wishful thinking), if that is what you meant regarding chart reading.
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Personally..I think you are mad if you are willing to have a $35 stop with realized paper profit..I would move stop to $952 and see what happens next..it can of course do anything..which is why monitoring and adjusting is the best approach.

Chart reading skills can be more advantageous with short term trading..as your "wiggle" will be smaller..which equates to less risk..but no matter what timeframe you use to make trade decisions..unless you have a way to repeat what you are doing..over and over..then I think it will be very hard to get any consistency.

If you see several small bars..then..there is a very good chance you will see a wide bar soon..and..when you see a wide bar..or..several wide bars in succession..there is a very good chance that you will soon see several small bars..the key is not predicting the direction..it is.. trading the action..for which you need..control

You appear to be doing well..if you get a few more small key skills..and use them..there is no reason why you should not do exceptionally well..I would be worried that if we get any sizable move down you will be hit hard..and you are going to get back into the "hold" way of thinking..which..is not where you want to be if you want to get anywhere near exceptional returns..remember..if you do not have a plan of action for each scenario..up..down..or sideways..then..you really are gambling..and you know where gambling gets you in the financial markets!
 
Max1 said:
No. The Kelly Criterion assumes the existence of a utility function, but then proceeds to maximize the growth of the bankroll. If we modify this to correct the inconsistency, then we find that the Kelly system does not "outperform" other systems. It is just one of many possible systems.
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No disagreement with your statement. For someone who was always "all in" with very large trade size (bet the farm approach :D), 1/2 Kelly is a great improvement in risk management.

What other systems are you refer to?

Thanks.
 
MrScalper said:
Personally..I think you are mad if you are willing to have a $35 stop with realized paper profit..I would move stop to $952 and see what happens next..it can of course do anything..which is why monitoring and adjusting is the best approach.
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You may be right. One time I mentioned on ET I let a WFM option went from up 100% to zero because I waited too long.

But I had been stopped out (picked off) too many time using trailing or hard stops so I no longer use them. The problem with mental stop, often it is really difficult to pull the trigger.

By the way not having a trailing stop worked for GILD (now @ $83,74 and if I set a trailing stop, I would have been stopped out at either $68 or $70 and probably won't get back in).

As for GOOGL, I will use it as my first real money chart pattern exercise to set my exit instead of using a stop and see where it takes me. Perhaps a very expensive exercise?:sneaky:

Regards,
 
MrScalper said:
Chart reading skills can be more advantageous with short term trading..as your "wiggle" will be smaller..which equates to less risk..but no matter what timeframe you use to make trade decisions..unless you have a way to repeat what you are doing..over and over..then I think it will be very hard to get any consistency.

If you see several small bars..then..there is a very good chance you will see a wide bar soon..and..when you see a wide bar..or..several wide bars in succession..there is a very good chance that you will soon see several small bars..the key is not predicting the direction..it is.. trading the action..for which you need..control
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Very good advice and thank you for the tips on chart reading.

Best to you.
 
ironchef said:
No disagreement with your statement. For someone who was always "all in" with very large trade size (bet the farm approach :D), 1/2 Kelly is a great improvement in risk management.

What other systems are you refer to?

Thanks.
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In general... due to the fact that it is impossible to predict the unpredictable (we can estimate the exact risk only after the event has taken place), I use several systems at once. The main one is paid signals. But it all depends on the market condition. The combination of signals pointing in one direction is important, especially when you are holding a position.
 
Max1 said:
In general... due to the fact that it is impossible to predict the unpredictable (we can estimate the exact risk only after the event has taken place), I use several systems at once. The main one is paid signals. But it all depends on the market condition. The combination of signals pointing in one direction is important, especially when you are holding a position.
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Thank you.
 
Max1 said:
I also use different estimates of political risk political risk BERI, PSSI, Knudsen's model
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I have no idea what they are, way beyond my pay grade.o_O

I think it is better I stay with my Kelly, keeping things simple but thanks anyway.
 
MrScalper said:
Personally..I think you are mad if you are willing to have a $35 stop with realized paper profit..I would move stop to $952 and see what happens next.
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If I did what you said I would be out of my position yesterday with a nice profit. Putting GOOGL and Nasdaq charts side by side, I can see why $952 make sense as a stop. All things considered very good call.

Was going to do that but then decide to wait, why? Now that I am practicing chart reading, this is a real money exercise to see how chart reading works.

Thanks again.
 
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