Quote from intradaybill:
Quote from kut2k2:
Looks like you never got past example 1.
hmmm...nice way to start with someone who tries to help you and save you from becoming a ridicule in other forums.
What other forums? And don't worry about me, slick, watch out for your own image. Your hangup is obviously semantics. If you look at my usage of "outcome", you'll see that it has been thoroughly consistent. Nitpicking at trivialities won't convey any real understanding of my message.
Quote from intradaybill:
Get a probability book and read what expected value means. First of all you assume 10 draws with replacement. This is totally arbitrary notion here. I do not understand where you got that.
Yeah, that lack of understanding comes from nitpicking at trivialities. Here are some clues. There are ten balls to be picked. There are ten draws with replacement. Gee, I wonder if there could possibly be any connection between ten balls and ten draws. Naw, must be totally arbitrary.
Did you ever bother to read example 2 in toto, or are you just flailing at this point?
Quote from intradaybill:
The expected gain in you 2nd example is:
E(x) = 0.7 x (-1) + 0.1 x (-5) + 0.2 x (10) = 0.8
Since you're picking nits here, that's the expected gain for a single bet. The formula I posted was the expected
cumulative gain for your entire betting account over ten bets,
because that is what we're trying to find the Kelly fraction for. Forgive my lack of total precision in my previous post, I keep forgetting how some ETers expect to be hand-held through every single detail because they're utterly incapable of filling in any gaps, no matter how elementary said gaps may be.
Quote from intradaybill:
First of all, nobody uses the simple Kelly formula for more than two outcomes. There are generalized forms for multiple outcomes, so you bring up a distracting issue here.
Secondly, trading is a two outcome bet. You go either long or short (if you do nothing you are not trading). This is your probability space. It is the simplest space. You also either win or lose. Each time you go long or short, it is called a Trade. This trade has a value, like any random variable takes a value from a Prob. Dist.
First of all, plenty of people have been arguing for using the simple Kelly formula for more than two outcomes. That's what my posts have been about. And what I posted
is the generalized form for multiple outcomes. Oh yeah, you don't like the way I'm defining "outcome". Tough; get over it.
Second, going long or going short are not outcomes no matter how you define "outcome", going short or going long are decisions. And since you're picking nits, trading is actually a
single outcome bet. You place a trade, you close the trade, you get a trade return: a single outcome. Dividing your returns into "average win" and "average loss" is no less arbitrary than treating each return value as a separate outcome. The difference is in how the trader chooses to analyze his trade returns to calculate his Kelly fraction, which by the way doesn't give a flying fig whether you went long or short.
Quote from intradaybill:
This is a problem for you I used to give to my students in exams. Please provide an answer. If you dissappear it would mean that you are a hoax and a coward.
Problem: Fair-die experiment. Each time the die is rolled you win ten times the number of the face shown. What is the expected gain of the experiment?
35. Was that supposed to be a challenge?
Do yourself a favor and read gummy's presentation. He'll almost certainly offend your nitpicking sensitivities less than I did, even though we both got the same results.
