Kelly Criterion & Risk Of Ruin As Risk Management Tool

Discussion in 'Risk Management' started by ironchef, Jul 4, 2017.

  1. MrScalper

    MrScalper

    We give 2 traders $100k each and let them at it for 1 year.

    Trader 1 does 1,200 trades and makes $10k.

    Trader 2 does 50 trades and makes $25k.

    If you were given a choice to back one of the traders with your money..what trader might you back?
     
    #21     Jul 6, 2017
  2. Not enough information to make a decision. You provided the cumulative returns, but no risk (such as the distribution of drawdowns, or at least the standard deviation of returns).
     
    #22     Jul 6, 2017
  3. ironchef

    ironchef

    To survive for 1 year making 1,200 trades, trader 1's trades must be very small in size so his risk of ruin is likely very low. A $10K return on a risk adjusted basis should be superior. If I were a conservative type, I would bet my money with trader 1.

    Well, just a WAG MrScalper, what do I know.:D

    Best wishes.
     
    #23     Jul 6, 2017
  4. ironchef

    ironchef

    Come to think of it, yes, you are right again.
     
    #24     Jul 6, 2017
  5. MrScalper

    MrScalper

    Trader 1 has 50/50 win/loose with max drawdown of 10% capital.

    Trader 2 has 40/60 win/loose with max drawdown of 20% capital.

    Neither has a fixed % risk per trade.
     
    #25     Jul 7, 2017
  6. The one who understands the Kelly criteria.

    GAT
     
    #26     Jul 7, 2017
  7. MrScalper

    MrScalper

    Neither ever head of Kelly criteria!
     
    #27     Jul 7, 2017
  8. :)
     
    #28     Jul 7, 2017
  9. MrScalper

    MrScalper

    Mr ironchef..you stated that you have received "good advice" in relation to risk management that will help you improve your results. Do you not think you are jumping the gun?

    I will predict here and now that you are wasting your time on such "stuff". The only thing you need to do is keep your risk per trade very low until you have gained adequate experience in relation to trading..if you do not include chart reading skills in this adequate experience..then you will just end up like the rest..talk about everything and really get nowhere.

    The web is full of "experts" on just about anything you can talk about..but of course most are using the web to live out their fantasy worlds!

    I bet you that you will not prove me wrong..do you accept the bet :)
     
    #29     Jul 7, 2017
    ironchef likes this.
  10. %%
    I like Mr Druckenmiller[ mispelled his name Drunkenmiller LOL, correction]. But his famous quote['' It takes courage to be a pig,LOL'' ]can get BIG trends + blow Up accounts. But one reason i like him/Jack Schwager is he disclosed he blew up a[leveraged] fund of his...........................................................................

    Actually Ironchief ;a lot/many funds, like long only mutual say fully invested // 95% + more invested; not many bow up =not leveraged/margined + maybe 100 or 500 stocks........................................................................................................

    Beside$, I remember Mr Druckenmiller had real good work habits + worked real long hours for a long time. So if 5% do big trends well+ 95% blow up because of [ ''It takes courage to be a pig''LOL] Proceed with caution...........................................................................

    And a lot of it[risk %] depends on the market; i did , for decades+ could risk a big % in home improvement business, wisely, because as long as i did not abuse the privilege; bid/ask was the same[ In the sense i could take lumber-paint back if a client canceled + get 100% of my money back] -they did not enforce a 10-15% restocking charge even they could. [the sign said they could charge a 10-15% restock charge]. Options are not very liquid; even though some can be...........................................................

    Losses are a business expence,, less is more,;
    but no such thing as busines$ without business expences
     
    #30     Jul 7, 2017
    ironchef likes this.