In >Huh?
>Can you just give me the answer, please?
p = 50% probability of winning (like tossing a coin),
and equal winnings as losses (so W = L), Kelly says
"Forget it!
... but if you expect to win >Yeah, so are you going to explain why it ...
- When you make a winning trade, you average $
**500**. - Your losses, per trade, average $
**350**. - The probability of winning (and making, on average, $
**500**) is**0.60**... the Winning Probability. - Out of
**1000**trades, you'd expect to win**0.60*****1000**= 600 times and lose (1-**0.60**) ***1000**= 400 times. - The wins provide (600)
***500**= $300,000 and the total expected losses are (400)***350**= $140,000 ... for**1000**trades. - Hence, the expected gain is $300,000 - $140,000 = $160,000
... for**1000**trades. - The expected gain per trade is $160 ... dividing by
**1000**. - Then you expect to make this amount per trade ...
*on average*. - Then these expected winnings of $160 is just 160/500 = 0.32 or 32% of your
*winning*trades. - That's the
**Kelly Ratio**!
- When you make a winning trade, you average $
**W**. - Your losses, per trade, average $
**L**. - The probability of winning (and making, on average, $
**W**) is**p**... the Winning Probability. - Out of
**N**trades, you'd expect to win**p*****N**times and lose (1-**p**) ***N**times. - The wins provide $(
**p*N**)***W**and the total expected losses are $[(1-**p**)***N**]***L**... for**N**trades. - Hence, the expected gain is (
**p*N**)***W**- [(1-**p**)***N**]***L**... for**N**trades. - The expected gain per trade is (
**p**)***W**- (1-**p**)***L**... dividing by**N**. - As a fraction of
**W**, we get:**Kelly Ratio**= {**p*****W**- (1-**p**)***L**} /**W**
>Is that the same formula as you got above?
>But it's interpreted as the percentage of your capital to invest in each trade. Why?
>zzzZZZ
But, let's continue with another derivation:
... when Hal was being disconnected. |