Reality based coin-tosser method that beats 95% of traders in the world.

[u21c3f6]

Quote from Whisky:

The first conclusion is that a random strategy with costs or without them does not cut it in the long term for the purpose of making money and keeping it.

The second conclusion is that a minor positive edge strategy needs a very large account to allow the "long run" to manifest the edge without going bust in the short term, as the runs of "good luck" and "bad luck" happen in reality. The smaller the edge, the bigger the account must be to avoid ruin.

The third conclusion is that all these losers, that lose more than a random strategy would suggest, are doing something to their accounts that is much worse than random betting, and/or the winners of the game are doing something to their accounts and/or the price that traps all the losers in the wrong side time after time, and therein somewhere lie the two biggest edges of them all, as this is a zero sum game minus commissions: Giving liquidity to losers and/or taking liquidity from winners. Liquidity is a volume function that happens in all timeframes.

The first 2 conclusions are easy to prove mathematically. Maybe someone can do it and offer the proof here.

The third...well...it's not so easy to prove.

Good points. I would just like to amend the second conclusion. If we get away from 50-50 propositions, using Kelly you can prove that there are many scenarios where you are much better off having a smaller edge if the "win%" is high enough which in turn would not require a larger bankroll and will grow at a faster rate because you could risk a larger % of your bankroll on each trade.

Joe.

 

[sosueme]

Quote from u21c3f6:

Good points. I would just like to amend the second conclusion. If we get away from 50-50 propositions, using Kelly you can prove that there are many scenarios where you are much better off having a smaller edge if the "win%" is high enough which in turn would not require a larger bankroll and will grow at a faster rate because you could risk a larger % of your bankroll on each trade.

Joe.

Are you suggesting that a higher win% produces a smaller edge (win/loss ratio)

sosueme

 

[Whisky]

Quote from u21c3f6:

Good points. I would just like to amend the second conclusion. If we get away from 50-50 propositions, using Kelly you can prove that there are many scenarios where you are much better off having a smaller edge if the "win%" is high enough which in turn would not require a larger bankroll and will grow at a faster rate because you could risk a larger % of your bankroll on each trade.

Joe.

If you consider that "edge" is a function of both the W% and the payoffs, then what you say does not make sense, but hey if you can prove it to yourself and others...

 

[Random.Capital]

Quote from u21c3f6:

...using Kelly you can prove that there are many scenarios where you are much better off having a smaller edge if the "win%" is high enough...

Respectfully disagree with this. Kelley is itself based on assumptions that may be necessary to make the math tractable, but don't accurately reflect actual market movements. A typical approach to dealing with this is to use a fractional Kelley approach, which is simply using a defined percentage (<100%) of the number given by Kelley.

But that percentage is an empirical choice, which means we're right back to not being able to prove anything, in the Whiskey sense of "prove".

Or put another way - "many scenarios" may be correct, but it requires proof that there is a reliable (ie profitable) way to determine when the markets are and aren't in one of the "many scenarios". The requirement for a proof hasn't been met, it's been shifted to another part of the problem.

None of this is to say Kelley is useless - it's not - it's a tool in the toolbox like any other.

 

[Whisky]

Quote from Random.Capital:

Respectfully disagree with this. Kelley is itself based on assumptions that may be necessary to make the math tractable, but don't accurately reflect actual market movements. A typical approach to dealing with this is to use a fractional Kelley approach, which is simply using a defined percentage (<100%) of the number given by Kelley.

But that percentage is an empirical choice, which means we're right back to not being able to prove anything, in the Whiskey sense of "prove".

Or put another way - "many scenarios" may be correct, but it requires proof that there is a reliable (ie profitable) way to determine when the markets are and aren't in one of the "many scenarios". The requirement for a proof hasn't been met, it's been shifted to another part of the problem.

None of this is to say Kelley is useless - it's not - it's a tool in the toolbox like any other.

In defense of u21, there is a variation on Kelly betting by Ralph Vince (grand-grand-grand- - - son of Leonardo da Vinci) called "Optimal f" which introduces a more general formula that is perhaps of better use.

The problem with these "agressive money management" approaches is always the same: To calc an optimal size of bet, the worst loss has to be known...and as the "worst loss" is always in the future (by definition) then more conservative or failsafe approaches must be implemented, especially if one doesn't want to get caught in one of those "lack of liquidity pockets" with an untenable position.

And that is more or less all that I have to say about that.

 

[u21c3f6]

Quote from sosueme:

Are you suggesting that a higher win% produces a smaller edge (win/loss ratio)

sosueme

No. As an extreme example, one is much better off "playing" a system that has 62.5% wins and only a 10% edge than a system that has a 20% edge but only 6.25% wins. The first system using full-Kelly would have a risk size of approx 26.5% of your bankroll whereas the second system would only allow at full-Kelly approx 1.5% of your bankroll. Assuming equal starting bankrolls, you can see how the first system would far surpass the second system.

I am not recommending full-Kelly. I use full-Kelly to determine the "safer" strategies and then size my risk by half-Kelly.

Joe.

 

[sosueme]

Quote from Whisky:

In defense of u21, there is a variation on Kelly betting by Ralph Vince (grand-grand-grand- - - son of Leonardo da Vinci) called "Optimal f" which introduces a more general formula that is perhaps of better use.

The problem with these "agressive money management" approaches is always the same: To calc an optimal size of bet, the worst loss has to be known...and as the "worst loss" is always in the future (by definition) then more conservative or failsafe approaches must be implemented, especially if one doesn't want to get caught in one of those "lack of liquidity pockets" with an untenable position.

And that is more or less all that I have to say about that.

Fascinating.

Would you say that "aggressive money management" has any place in a system with a high win/loss ratio and a high accuracy % or is it in place of such a system.

Maybe a high win/loss ratio AND a high accuracy ratio together in one system is unobtainable.
The holy grail so as to speak.

sosueme

 

[sosueme]

Quote from u21c3f6:

No. As an extreme example, one is much better off "playing" a system that has 62.5% wins and only a 10% edge than a system that has a 20% edge but only 6.25% wins. The first system using full-Kelly would have a risk size of approx 26.5% of your bankroll whereas the second system would only allow at full-Kelly approx 1.5% of your bankroll. Assuming equal starting bankrolls, you can see how the first system would far surpass the second system.

I am not recommending full-Kelly. I use full-Kelly to determine the "safer" strategies and then size my risk by half-Kelly.

Joe.

thank you Joe

sosueme

 

[Whisky]

Quote from sosueme:

Fascinating.

Would you say that "aggressive money management" has any place in a system with a high win/loss ratio and a high accuracy % or is it in place of such a system.

Maybe a high win/loss ratio AND a high accuracy ratio together in one system is unobtainable.
The holy grail so as to speak.

sosueme

I'd say yes. Never say never!. :eek:

If you can hit right 100% of the time, who cares what the payoffs are?. Bet 100% everytime and be done as fast as possible with this trading crap, or that's what I would do.

 

[sosueme]

Quote from Whisky:

I'd say yes. Never say never!. :eek:

If you can hit right 100% of the time, who cares what the payoffs are?. Bet 100% everytime and be done as fast as possible with this trading crap, or that's what I would do.

100% is a big ask.
What would you consider an achievable win ratio to be in order to enter the ES market.
Over time no doubt this figure could be improved upon.

And while we are at it, what win/loss ratio would you consider in order to enter the ES market.
It goes without saying that these two ratios are inseparable.

sosueme