Risk/Reward Ratio

It was a quote from William Eckhardt,Richard Dennis partner (Turtle Trading)..

Case in point,OTM put sellers

 

I like this ...

 

5 pages in and nobody mentioned Expectancy, which is what matters.

Use Kelly for position sizing.

 

The probability for not having a loss is 34.8% (s.b.), conversely the probability for a loss is 65.2% :
Sx=104.20 S=100.00 s=0.30 t=0.123288 r=0.0 q=0.0
z=0.390574353235 p(z)=0.651944057034 --> p["Sx>=104.20"]=0.348055942966 pRest=0.651944057034

 

Some see the Reward.
Some see the Risk adjusted Reward.
Some see the True Odds of the Risk adjusted Reward.

You Need to Know What to Look For

If we don't know what we're looking for then ...
We're going to react to random events
When we should see patterns

It's not the market faults ...
It's our own Structures and Models.

'To a man with a hammer, everything looks like a nail'

 

It's useless metric on its own..

 

Not much stands alone in this world.

 

LTCM thought they knew the expectancy. They had Nobel winners in the team.

 

They knew the expectancy too well,they didnt know leverage well enough

 

And correlation too.