Well, I must say when I posted the question about whether optimal f is about the percentage of the total amount of an account to be put into one trade, or is about the percentage of the total amount of an account to be risked in one trade, I did not know the exact answer. But if according to some posters above, it is the percentage of the total account to be put into one trade, then I roughly calculated the optimal f of my strategy and found I should only put 12% of the account into one trade, that is less than my current operation, in which I usually put 20-30% money in the account into the trade. Have I been embracing an ridiculously high level of risk and am I too agressive in my trading? Well, according to my MDD level, it is unlikely the case. So to figure out the doubt, I pulled out the book "Portfolio Managment Formulars" by Ralph Vince, and on page 80, I found the following words in the second paragraph : " Most people think that the optimal fixed fraction is the percentage of your total stake to bet. This is absolutely false. There is an interim stop involved. Optimal f is not in itself the percentage of our total stake to bet, it is the divisor of our biggest loss, the result of which we divide our total stake by to know how many bets to make or contracts to have on." Then it all makes sense to me. So I am still a conservative trader and risking much less than the optimal f suggests (12% as mentioned above ) in my trading.
I believe the correct answer is (b). Kelly was derived with stakes where the entire amount would be won or lost. Also, the amount to expose in itself does not mean anything unless it's connected to an amount at risk, as in answer (b).
Yes, a baseline is needed. Apart from this, I believe trades have to be grouped until a trend emerges where each group tends to have a regular sort of amount at risk, eg 6% at risk for an entire bundle of trades. One way or another, I believe Kelly requires the user to specify how much is at risk (not merely how much to expose).
Simplistic thinking. I think you totally missed the point. Nobody spoke about "total risk control" but you. Obviously you mean something different by that than most of us here. I spoke of the normal risk control every trader exercises through position sizing. Kelly does fine if your system does fine. If you get an unexpected streak of losers, Kelly breaks down and risk is out of control. Your account is wiped out in that case, period. Ron
Yes, that is incredibly simplistic thinking on your part. If one gets a string of losers, the Kelly fraction (which is ridiculously easy to update) shrinks accordingly. That is, if you're smart enough to make it adaptive in the first place. Some people, on the other hand, never think ahead.