How much cash to draw from your stratgies

Discussion in 'Professional Trading' started by boreas, Jan 11, 2007.

  1. boreas


    I trade several strategies based on kelly values for how much money I risk.

    I am wonderring if there are any similar rules or principles for how much cash to take out of a strategy??? And how often?

    Currently I am thinking of taking 10% out of every winning trade, and leaving it in a cash account.
  2. squall


    I'm not the one to ask, but that sounds like a good idea.
  3. Are you talking about fixed Kelly, in which you resize bet sizes downward as your bank lowers, but you remove profits rather than raise bet size as you win?

    If you're doing the original Kelly you would raise/lower your bets as your bank increases/decreases in proportion to your edge.

    I need to look in my gambling books, but I'm pretty sure you can remove profits that match your theoretical edge, but no more than that or your risk of ruin goes way up. A lot of my associates (pro gamblers) solve this problem by only spending 50-80% of their EV annually.

    This could be problematic for any type of discretionary trading since you can't readily quantify your exact edge unless it's backtestable. If anything, I would err to the side of caution if your stake isn't readily replaceable, i.e you're talking about 10-50k vs. 10 MM.

  4. boreas


    I am doing the original Kelly, where I keep a fixed ratio of the amount of money I bet.

    Basically I am looking for the optimal way to remove cash from my wins without hurting the growth of the trading account.

    It is a bit tricky to think about. I suppose with the Kelly values, you are optimizing your betting size for your best growth. What I need to do is factor in the removal of cash after each winning trade.

    Really, I think what I need to do is get a fixed amount I will remove for each lot of each winning trade, and then revise my kelly value down to account for the missing profit that would have been there before.

    Also, you advice is good, the thing to do is not to remove too much from each winning trade.
  5. minmike


    Any kind of removing profits, whill hurt account growth. You can't have your cake and eat it too. It all comes down to how much are you willing to hurt growth to take the money out.
  6. boreas


    Yes, I know, my question is about the optimal way to do it.

    The way Kelly values optimize your growth.