What makes you assume there's no connection between risk management and maximization of profit? Instead of just singing the praises of Ralph Vince nonstop, why not demonstrate it by applying it to Example 2? I don't feel like looking up Vince's method when it appears to be nothing but a rip-off of Kelly, so maybe if you give us a practical example, it might be more convincing.
I think you guys are trying to assign far more numerical specificity to trading outcomes than the markets can actually provide. Trading doesn't quite provide you with the kind of probability distribution offered by mathematical games of chance. Confidence is a good thing. False confidence? Not so much. It kind of reminds me of one definition of a calculator: an instrument that lets you take two seat-of-the-pants estimates, multiply them, and get accuracy to the 6th decimal.
My calculator is accurate to the 8th decimal. :eek: Your observation is correct IMO and is probably the reason why when dealing with less than static probabilities, one should use a partial Kelly like 1/2 or some other percentage. Joe.
"It depends on what the [value] of the [parameter 'n'] is." I've been careful to always state that I was presenting an approximation of the optimal trading fraction.