Your sentence doesnt make sense. And Murray is wrong because Kelly takes into account average win & loss and they dont have to be the same. And Murray is a vendor.
the article does not say that kelly applies to a game with more than 2 outcomes or taking an average of winners or losers
I believe he is referring to the Kelly formulas which give you the answer satisfying the Kelly Criterian in closed form for binomial outcomes. -Ralph Vince
Along these lines, the Kelly Criterion is not necessarily applicable trading because, contrary to what Kelly presented (p925) in his paper, it does not yield the optimal "fr action" to risk, but rather, a risk factor. That's ok, provided you understand that going in -- if not, you will be likely wildly overly-aggressive. The Optimal f formula DOES provide the optimal fraction. It's possible to translate between the two, just as one might translate between Fahrenheit and Celsius. There is an enormous benefit to using the optimal fraction, however, as it is possible from that to determine what the best guess for the future value for f (as a fraction) will be. I won't elaborate further on that, but if you;re interested this is detailed in the forthcoming Journal of the International Federation of Technical Analysts, presented in Berlin next month, or in Tampa in November (see ralphvince.com for more on this) -Ralph Vince
Daal, You're harping the party line, and your saying that shows that you don;t know what it is. You don't KNOW what your optimal f is in the future -- that's what will get you broke. Not Optimal f. Read the paper I cited a few posts ago (not the Michael Harris one, but rather the IFTA one, or come to Tampa). You can make an educated guess where it will be in the future -- and not go broke. In fact, you will maximize profits that way. That's assuming you want to maximize profits. Most don't. Most are trading for "action" or some type of confirmation of themselves. And maximizing profits, though a legitimate aim, may not be what your aim in the markets is -- there are numerous legitimate aims.