This is completely wrong. Your expectation is not 0.0012, it is closer to 0.0008, Formula for Kelly growth: growthRate = 0.35 * 2 * ln(1 + 0.025) + 0.65 * 1 * ln(1 - 0.025) growth Rate = 0.0008282536 exp(growthRate * 252) - 1 = 0.2320999 23% per annum, not 37%
Went to an online calculator and it says : View attachment 218291 You tell me 0.08% and I get 0.12%... Strange. We all agree about betting 2.5%. I was indeed using an arithmetic mean rather than a geometric one. Thanks for pointing this out. I was biased upward ! EDIT The formula looks like this: y = p * ln(1 + b * x) + (1 - p) * ln(1 - x) y= 0.35 * ln(1+2*0.025) + 0.65 * ln(1-0.025) Found 0.06% too. However as per Monte Carlo, the average growth for the strategy is 37% So I am not sure what to believe. I do prefer Monte Carlo though.
The online calculator is correct, my previous post was wrong. > f <- 0.025 > o <- 2 > g <- 0.35 * log(1 + o * f) + 0.65 * log(1 - f) > g [1] 0.0006199823 > exp(g*252)-1 [1] 0.1691015 So about 17% per annum
A nit article on growth rate. https://www.google.fr/amp/s/blog.thinknewfound.com/2018/03/you-are-not-a-monte-carlo-simulation/amp/
Though it also shows that tiny edges may not exist when you take risk. They don’t want to be a prop firm, they make money by not taking risk, and hedge immediately when there would be risk. They would probably close the business if they were forced to “trade” vs being a service provider. And their compounding may work due to millions of trades (and strategies) vs an example number of 4 strategies discussed here. They also don’t seem to grow every year. Their stock is often going down, so that compounding is suspiciously weak.
stock price doesnt indicate if firm makes money or not. Stock price is what is paid to shareholders, management can pay themselves a bundle before any leftover for shareholders. Quant traders are paid at least 300K for mid level.
Of course. Though their revenues seem to be down in 2019 from 2018. At least they don’t seem to be compounding much. But I do agree that they’re not a bad example to look at, just also consider the limitations of both the edge, the capacity, compounding, expenses, etc.
It all makes sense in theory... If (true condition), then (true condition)... If only we could trade like machines and not allow emotions or pride to cause losses!
The tiny edge is negative after factoring commission, fees, spread and a very slight change of market environment against you.