Kelly for traders

[kut2k2]

Quote from joesan:

The point of kelly's formula is not about risk management, the point of kelly formula is about maximization of the profit.

What makes you assume there's no connection between risk management and maximization of profit?

Quote from joesan:

Though in practice I have been very conservative , but I still have to point out that in mathematical terms, there is only right kelly f% for the maximal output of any strategy with an edge. And that kelly f% goes with Ralph Vince's version. And in this respect, only putting f% of the whole account into a trade just does not take the enough risk that will make you full advantage. You want to trade the hell out of a profitable model, you need to stomach painful drawdowns. Then again, more profit or less risk, it is a personal choice.

Instead of just singing the praises of Ralph Vince nonstop, why not demonstrate it by applying it to Example 2? I don't feel like looking up Vince's method when it appears to be nothing but a rip-off of Kelly, so maybe if you give us a practical example, it might be more convincing.

 

[Thunderdog]

I think you guys are trying to assign far more numerical specificity to trading outcomes than the markets can actually provide. Trading doesn't quite provide you with the kind of probability distribution offered by mathematical games of chance. Confidence is a good thing. False confidence? Not so much.

It kind of reminds me of one definition of a calculator: an instrument that lets you take two seat-of-the-pants estimates, multiply them, and get accuracy to the 6th decimal.

 

[u21c3f6]

Quote from Thunderdog:

I think you guys are trying to assign far more numerical specificity to trading outcomes than the markets can actually provide. Trading doesn't quite provide you with the kind of probability distribution offered by mathematical games of chance. Confidence is a good thing. False confidence? Not so much.

It kind of reminds me of one definition of a calculator: an instrument that lets you take two seat-of-the-pants estimates, multiply them, and get accuracy to the 6th decimal.

My calculator is accurate to the 8th decimal. :eek:

Your observation is correct IMO and is probably the reason why when dealing with less than static probabilities, one should use a partial Kelly like 1/2 or some other percentage.

Joe.

 

[kut2k2]

Quote from Thunderdog:

I think you guys are trying to assign far more numerical specificity to trading outcomes than the markets can actually provide. Trading doesn't quite provide you with the kind of probability distribution offered by mathematical games of chance. Confidence is a good thing. False confidence? Not so much.

"It depends on what the [value] of the [parameter 'n'] is."

I've been careful to always state that I was presenting an approximation of the optimal trading fraction.