Which setups are more attractive?

[Visaria]

Quote from kut2k2:

SPS(C) = 1.221 actually.

Despite the low winrate, the payoff makes the system best of the three. Would you refuse to play one of the multi-state lotteries even if the jackpot reached a billion dollars? Lol

Yes, it is 1.221, my bad.

What would be the "SPC" of playing the lottery if it hit £1 billion?

 

[smile]

Quote from kidPWRtrader:

Unless we are talking about a robo trader (which I know exist, but are few and far in between), you obviously want to be trading the higher accuracy setup.

Please do yourself a favor and run a monte carlo on 10,000 trades and see if you feel comfortable taking 50 losses in a row.


-Kid

Any low win rate is psychologically devastating and almost certainly will not be followed through to get the 10% winners.

What is the lowest win rate that you would be psychologically willing and able to follow?

 

[kut2k2]

Quote from Visaria:

Yes, it is 1.221, my bad.

What would be the "SPC" of playing the lottery if it hit £1 billion?

Sorry, I didn't realize you are British. Anyway here in the USA, there are two big multi-state lotteries and you can calculate the break-even jackpot (bejp) of each. For example the bejp of the MegaMillions lottery, ignoring taxes and the lumpsum-versus-annuity nonsense, is $143,739,648 (based on the current odds in Wikipedia).

$1G/bejp = 6.96

So ignoring taxes and the lumpsum-versus-annuity nonsense, you should buy no more than six tickets for a $1G MegaMillions jackpot. Considering taxes and if you want the lump sum, this number drops to four or less.

 

[Swan Noir]

Can you elaborate on this? How can I consider a setup with a negative expectation over the long run? It is about the long run not getting lucky on Tuesday!

Quote from chiefFLE:

setups with a higher % winrate are the most attractive, even if they have negative expectation over the long run. It is a psychological barrier to success. One of many.

 

[Swan Noir]

Yes, I would. I see little diference in my life between having $50 million and a billion. Since the $50,000,000 does not tempt me why should the nice fat round number get me excited!

Quote from kut2k2:

SPS(C) = 1.221 actually.

Despite the low winrate, the payoff makes the system best of the three. Would you refuse to play one of the multi-state lotteries even if the jackpot reached a billion dollars? Lol

 

[kut2k2]

Quote from Swan Noir:

Yes, I would. I see little diference in my life between having $50 million and a billion. Since the $50,000,000 does not tempt me why should the nice fat round number get me excited!

Unless you and Visaria are the same person, I wasn't talking to you.

And most people see a lot of difference between 50 million and a billion dollars.

 

[Swan Noir]

Use a PM if you want to reach someone privately. Most people probably do see a world of difference between the 50 mil and a billion yet my guess is if they give it some thought many will see that the change in circumstance is so significant that the difference in the quality of their lives is not to great.

Quote from kut2k2:

Unless you and Visaria are the same person, I wasn't talking to you.

And most people see a lot of difference between 50 million and a billion dollars.

 

[Ghost of Cutten]

Quote from elitetradesman:

Consider two hypothetical setups. One setup has a winning rate of 55% with a potential profit of $433 and a potential loss of $407. The other setup has a winning rate of 10%, a potential profit of $1000 and a potential loss of $50. Both have the same expectancy at $55.

Which setup do you find more attractive and why?

The first setup is far more attractive because the higher win rate lowers the likely drawdown, and thus you can trade it on much more size for the same risk.

 

[Ghost of Cutten]

Quote from Wide Tailz:

I'm going to take the other side.

The first setup with the higher win rate will have much milder equity swingz for the same expectancy, therefore the position size can be higher for the same max drawdown.

This is just my hunch, of course, as no statistical distribution actually exists that would allow me to prove this mathematically.

It can be proven easily by using the Kelly formula, or with a little effort by using Monte Carlo runs.

 

[Ghost of Cutten]

Quote from kut2k2:

SPS == k*W

k(A) = .55/407 - .45/433 = .0003121

SPS(A) = k(A)*433 = 0.135

k(B) = .10/50 - .90/1000 = .0011

SPS(B) = k(B)*1000 = 1.1

System B is much more attractive.

You got the basic Kelly formula wrong. Kelly fraction is 12.7% for the first setup, 5.5% for system B.

System A: Kelly = (.55*(433/407+1)-1)/(433/407) = 12.7%

System B: Kelly = (0.1*(1000/50+1)-1)/(1000/50) = 5.5%