No...I actually find this interesting. I am reading up on Kelly's formula in the Fortunes Formula...book that is. I didn't;t get to the part about the formula yet, so I can't really argue. But I believe that this is interesting. Just curious. How did you derive this formula?
Math was never my strong point.. Did OK in stats and cal; but still never used a formula to figure out my loss or risk ratio; and there is a very good reason for this. There is no way to configure what large stock holders do, funds do, terrorists, dollar, market sentiment, etc. If the market was all X's and O's, everyone would be a zillionaire. Just my opinion though.
Math and trading are seperate animals. Trading is the beast that needs to be tamed, the math part is simple. The math is just looking at the bottom line and reflects how well you have tamed the beast...........
I think Kellys formula is this.... K = W - (1-W)/R Where: K = Fraction of Capital for Next Trade W = Historical Win Ratio (Wins/Total Trials) R = Winning Payoff Rate Ex: For example, say a coin pays 2:1 with 50-50 chance of heads or tails. Then ... K = .5 - (1 - .5)/2 = .5 - .25 = .25. Kelly indicates the optimal fixed-fraction bet is 25%.
K = W - (1 - W) / R = (WR + W - 1) / R = ((R + 1) * W - 1) / R I had: f = ((R + 1) * P - 1) / R Different notations, same formula.
Just a question..... How did you get WR in the equition? K = W - (1 - W) / R = K=W-((R^-1)-(WR^-1)) Is isn't it how it supposed to be if you break it down? Or is my calculations wrong?
No, nothing wrong with your calculation that I can see. To simplify to a single fraction (which is what gets WR in the equation), multiply and divide W by R: K = W - (1 - W) / R = WR / R - (1 - W) / R = (WR - (1 - W)) / R, then as above.