the kelly is very logical, but very difficult to apply in practice. i am wondering if there are any other popular and logical sizing/position strategies?
money management besides the kelly
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I was thinking about something like the following. Use a fixed amount of risk/loss you ready to take per trade (1%, 2% etc) size the position accordingly. If trade is profitable, on the next trade, be ready to lose half of the profit of earlier trade on top of regular max risk.
With that setup if a trade really works well, you would be able to take bigger size while taking limited risk. Just an idea
Many books from Van Tharp, including the definitive guide.
http://www.vantharp.com/products.asp
http://www.vantharp.com/products/definitive-guide-position-sizing.asp
When you figure that out, you'll want a performance measure
http://www.futuresmag.com/2013/09/01/measurement-matters-measuring-trading-performance
http://www.vantharp.com/products.asp
http://www.vantharp.com/products/definitive-guide-position-sizing.asp
When you figure that out, you'll want a performance measure
http://www.futuresmag.com/2013/09/01/measurement-matters-measuring-trading-performance
I've kept things simple thus far and have just use a modified optimization process using a specific non-linear objective function (don't want to give away all of my secrets).
However, more recently I've been thinking about taking a much more online learning approach to money management. I think the problem can be framed very well within the context of k-armed bandits. Still in the early stages of flushing ideas out though.
However, more recently I've been thinking about taking a much more online learning approach to money management. I think the problem can be framed very well within the context of k-armed bandits. Still in the early stages of flushing ideas out though.
Depends on the timeframe IMO. For TF one can use Kelly leverage (not Kelly sizing). For swing one can use fixed fractional, the recommended choice in my view, 1% to 2% of bankroll per position.
Here is the key in my opinion: Don't be in a rush to get rich. If you have a PA methodology that you think can last forever risk only a small fixed percentage of your capital (well under 1% if you are well capitalized ... maybe up to 2% if the bankroll is tight) and let nature take its course. If you are trading a "gimmick" (not being pejorative ... I like gimmicks in their place) that is throwing off obscene returns that you know won't last then you need to look at Kelly or other calculations to determine how to roll the dice within reason.
Thirty years ago an acquantince who owned four sizable commercial buildings in Manhattan defined financial success as being happy for the status quo to continue. He conceeded that just being happy under any circumstance required an emotional maturity few have reached. Without getting too pilosophical if you are trading a methodology that you can see working -- with occasional adjustments -- for at least the medium term then restrain the greed. Be content to get stronger through capital growth over time. Don't be the fighter that steps up to the next weight class too soon. Kelly and other formulas tell you how risk it is to trade at x or y; only your judgment can tell you the level you should trade at.
The musical term "piano, piano" ... softly, softly, if heeded, can save a whole bunch of grief.
Thirty years ago an acquantince who owned four sizable commercial buildings in Manhattan defined financial success as being happy for the status quo to continue. He conceeded that just being happy under any circumstance required an emotional maturity few have reached. Without getting too pilosophical if you are trading a methodology that you can see working -- with occasional adjustments -- for at least the medium term then restrain the greed. Be content to get stronger through capital growth over time. Don't be the fighter that steps up to the next weight class too soon. Kelly and other formulas tell you how risk it is to trade at x or y; only your judgment can tell you the level you should trade at.
The musical term "piano, piano" ... softly, softly, if heeded, can save a whole bunch of grief.