I some opinions. I know that Darrell preaches the 5% rule on position sizes (Max) I have read some information on the Kelly criterion position sizing along with Martingale and a few others. It seems the Kelly system approach would work well with Binaries if you used like a 1/2 or 1/4 Kelly if your bankroll was $10,000. Do you think using a Kelly position sizing system is a good idea? Has anybody used or back tested these systems?
Kelly Criterion and position sizing
s_mark220
#3
Assuming that several APEX methods are used - APEX pattern, news trades, EPC, v-spike, then for Kelly what is the percentage of winning trades and ratio of the average gain of the winning trades relative to the average loss of the losing trades to use to compute position size?
feverwilly
#4
Kelly criterion - Wikipedia, the free encyclopedia
Position Sizing and the Kelly Formula ? Investor’s Quest http://www.investorsquest.com/2010/10/position-sizing-and-the-kelly-formula/
The 2nd link looks interesting… The only thing I can think about these position sizing systems is that in BlackJack probability is based on how many cards are in the deck. In the market just because the market has closed every 1st monday up from Fridays close for the past 100 years 80% of the time (this is a made up stat) it is not an 80% certainty that it will close tomorrow above Fridays close.
feverwilly
#5
Not sure Mark… That is what I am trying to figure out… I read somewhere just to use 2% of your account balance which would mean you need to have enough to offset commission…
I am thinking if you use the same position sizes on Binaries and get in at $57 (on a Buy) you would have to win 7 times out of 10 if you wish to be ahead. Have I calculated this wrong? You could minimize the losses by dumping the positions at $30 or $20 but there is always a chance it could come back. If you could get in at $50 on a buy you would only need to win 6 times out of 10 (which seems to be the P3 Signals win rate). and it should be a money making system.
s_mark220
#6
In consideration of what DM teaches and of the quote below, I would start with 5% and with success increase to 10%.
"In this simulation, the Kelly formula betting size of 10% had the highest return by far after 1,000 bets, however, the equity curve for the 5% position size has much lower volatility. The simulation using 20% resulted in a highly volatile equity curve and eventually negative returns. - See more at: http://www.investorsquest.com/2010/10/position-sizing-and-the-kelly-formula/#sthash.ssyiUpcR.dpuf
s_mark220
#7
Blackjack probs are DEPENDENT events whereas trades are not - like craps/dice, they are independent.
[quote=feverwilly]Kelly criterion - Wikipedia, the free encyclopedia
Position Sizing and the Kelly Formula ? Investor’s Quest http://www.investorsquest.com/2010/10/position-sizing-and-the-kelly-formula/
The 2nd link looks interesting… The only thing I can think about these position sizing systems is that in BlackJack probability is based on how many cards are in the deck. In the market just because the market has closed every 1st monday up from Fridays close for the past 100 years 80% of the time (this is a made up stat) it is not an 80% certainty that it will close tomorrow above Fridays close.[/quote]
darrell
#8
Agreed… would not start donig more and more because succesful as it can easily impact you if losses follow - your probability does not increase in trading as “cards” do not come out of the deck etc… - as your account grows - position will grow with it - lower volatility is better for long term survival