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# How much should you risk?

Discussion in 'Risk Management' started by kut2k2, Feb 1, 2016.

1. ### kut2k2

Here's a new puzzle for you optimal sizers.

Here's the scenario:

There is a 35% chance that you win 20% of your bet ;
There is a 25% chance that you lose 15% of your bet ;;
There is a 20% chance that you win 12% of your bet ;
There is a 15% chance that you lose 6% of your bet ;
There is a 4% chance that you win 50% of your bet ;
There is a 1% chance that you lose 100% of your bet.

What percentage of your betting account should you risk to maximize your potential gain?

bleau likes this.
2. ### Visaria

2.85%

Last edited: Feb 1, 2016
3. ### Xela

I know it's not a helpful answer, or even the type of answer you expected, but "none at all", I think, looking at it superficially?

In the long run, its net expectancy is only 0.0575 units per unit invested, for a PF of 0.0575, isn't it?

Unless I've made a decimal point error, somewhere in my quick calculation, perhaps ... but I don't think I have? This isn't really worth trading, is it?

4. ### Visaria

ev is 0.0575, profit factor is 2.01

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5. ### lawrence-lugar

I'm not too big on being left brain/anal/numbers/formulas -- I'm more of a ...artist/philosophical trader, if that makes sense. (it works for me)

But what is the correct answer to this questionaire

I got 50% just looking at the first two moments, and 75% looking at all of them. Which feels wrong. So I've probably made a mistakae

GAT

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7. ### Handle123

All things being 50/50 and only way you can alter that is though money management rules, I would go with "There is a 15% chance that you lose 6% of your bet"

8. ### Chubbly

This problem was solved a long time ago via Risk of Ruin calculations using the Kelly Criterion.

Violate this at your own risk. This is why most retail traders fail. They lack this basic information and bet too large for the expected win rate of their system.

http://www.albionresearch.com/kelly/default.php

Last edited: Feb 1, 2016
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9. ### kut2k2

Could you outline your thinking here? Thanks.

10. ### kut2k2

#10     Feb 1, 2016
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