That would be size 0, as Ralph correctly pointed out. You have to re-think your objective criteria.
Kelly Criterion & Risk Of Ruin As Risk Management Tool
- Thread starter ironchef
- Start date
That would be size 0, as Ralph correctly pointed out. You have to re-think your objective criteria.
neve bet the farm
most are too inexperienced to understand that making money and holding on to money are not the same..and if you start betting too much..namely by overtrading..the chances of losing back most of what you make...if not all..and even a bit more along with it..are very very high
how do i know this to be a fact..you may ask..easy..because it happened me a good few times..which of course..is what "experience" is !!!!!
it takes a good while for the "penny to drop"..but when it does you will never look at trading or investing the same way..ever again..and.. you will laugh at all the silly and ridiculous posts that you see others post..as..now having experienced the required experiences..you will know exactly what is required in order to hold on to the money you make
this kelly crap.. along with van tharp position sizing crap is not what you really need..once you learn that different markets behave differently..namely due to different people trading them..you can then work out the best approach to enable you to extract money from each market..using the best approach..with the minimal of risk to your hard earned cash.. note i said cash..not money you don't actually have
i could write a book about it..but..as no one would believe it..it would not sell..so why even bother thinking about it..if you want it to sell you only write about things that people want to hear and believe..it doesn't matter if it is true or not
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Stochastics look fine in some charts;
but i seldom use them, because they can get commission intensive, but mainly= i may not be out @ end of day. I tend , because of trends, to get in @end of day. Not a predictionI dont think markets are like taking quarters[00.25/+ half dollars] out of a pool hall, even though i did that when younger.LOL. But a [half] 50 % off sale can get plenty of attention.LOL
funny..i find the best time to get in is within the first 10 min..and get out astmtmt
there are many approaches to get in and out of the market..but..for the same market..the best approach is always the way that has the least amount of risk..in the shortest amount of time..simple really..yet so hard for most to SEE
Thanks, but maybe your answer is too simplistic?
Avoid is too strong a word, what I am looking for is a minimum risk of ruin fraction instead of a growth optional fraction. In another word, a risk fraction vs return curve similar to MPT?
As an example, lets work out a case involves coin toss: Lets say the odds are 50:50 for a head or a tail, if head, I win 1:1, if tail I lose 1:1/2. In such a scenario, I have positive expectancy. With infinite tosses infinite capitalization, Kelly bet size is 0.25 and my risk of ruin is zero. I don't know how to calculate Mr. Vince's Growth Optimal Fraction.
In a real world scenario, I need to include the number of tosses and my capital size. In such a case, I want to calculate the probability of ruin and find the minimum fraction. Perhaps, you are right, the minimum fraction is zero, i.e., don't bet. So, how do I compute the probability of ruin vs bet fraction?
I am not mathematically capable of doing the exact probability calculation with finite tosses and finite capital. Can you or Mr. Vince help? If not, am going to Monte Carlo this.
Infinite capitalization is not a requirement for Kelly criterion. You are probably referring to the concept of the "infinitely divisible capital", which is something else.
The Monte Carlo simulations would indeed give you a good idea about the trade-off between the risk and return.
A simple answer to your question about the risk/return trade-off is, size your trades to 1/3 Kelly. With respect to minimizing the probability of under-performance, you may want to look at the Stutzer Index.
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%%funny..i find the best time to get in is within the first 10 min..and get out astmtmt
there are many approaches to get in and out of the market..but..for the same market..the best approach is always the way that has the least amount of risk..in the shortest amount of time..simple really..yet so hard for most to SEE
I started to say something about risk of ruin + not taking much money into a pool hall, when young+ daytrading, especially since i seldom use 10 minute barchart/candlecharts..........; but since that specialist seemed to need some seller$ not to long ago , i see your point .
LOL-LOL. Not a prediction or a gamble.This is very involved. Risk of ruin (which can be defined as loss to within 100% of your starting bankroll, or any % of your starting bankroll) is an asymptotic function. One you determine your acceptable drawdown on initial funds (i.e. where you would say you are "ruined") you can seek the maximum return within that constraint. It;s solvable, but again I would refer you to the risk-opportunity analysis book as it really is to involved to go into here.
Bet 1/2, 1/4, 1/8, 1/16.. of the farm?neve bet the farm
Being there done that too.
I actually understand this now.
It is amusing. Many commented that you hadn't said anything of substance but what you said helped me strung together all my thoughts to create my own trading method.
I disagree. I don't think Kelly is crap, it gives me an anchor to formulate my trading strategy and risk management plan.this kelly crap.. along with van tharp position sizing crap is not what you really need..once you learn that different markets behave differently..namely due to different people trading them..you can then work out the best approach to enable you to extract money from each market..using the best approach..with the minimal of risk to your hard earned cash.. note i said cash..not money you don't actually have
Anyway, appreciate your reply and comments.
Anyone trading equities and holding overnight has to account for gap risk - something Kelly does not factor in. One of the most successful traders spanning the last 4 decades said that he would have done much better had he traded with smaller size. He said that he would not have been tossed of as many winners and would have more staying power in riding the big trends. I think there is a real lesson in that. Other traders on par with the best have said the same.
The element of time, the greater the amount of it, makes your mystery trade suspense thriller exponentially ambiguous and vague and difficult.
Time is your enemy as a trader, but more of your friend as an investor.
People, I think, should just hone and anticipate today...and rinse and repeat for the next day. The loose general idea is to maybe compound that. Higher revolutions the better.
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