Comments on: Calculating Long Term Profitability with Risk Reward Ratio http://www.bigfatpurse.com/2010/07/calculating-long-term-profitability-with-risk-reward-ratio/ Wed, 08 Feb 2012 04:44:12 +0000 hourly 1 http://wordpress.org/?v=3.2.1 By: ryan http://www.bigfatpurse.com/2010/07/calculating-long-term-profitability-with-risk-reward-ratio/#comment-879 ryan Fri, 30 Jul 2010 06:08:08 +0000 http://www.bigfatpurse.com/?p=2682#comment-879 HI Alvin, It's interesting that you share this. I just finished reading a bit about the work of Claude Shannon, colleague of John Kelly (that's how Kelly value comes about). To cut the long story short: they studied information transmission, extended the study into gambling, took the model into Vegas, won at Blackjack table and extended it into portfolio theory. John Kelly's work is an extension of what Shannon (dubbed the father of information technology) discovered. They set up hedge fund called Princeton-Newport and made 28% p.a. over quite a long period of time. The link is not just an equity curve generator. It's actually a 'position sizing' generator based on a given trading system. Based on 2 IRR and 50% chance, the Kelly value gives you a 0.25 reading which is very important. It tells you , you should only bet 25% of your capital, to be safe against elements of 'bad luck' and 'bad streek' over long period of time. That's the Key element of Kelly's Criterion. You will notice that the better the IRR value the higher the betting quantum Kelly value will suggest but it will not tell you to bet all into 1 basket. Read a book titled 'Fortune's Formula' . HI Alvin,
It’s interesting that you share this. I just finished reading a bit about the work of Claude Shannon, colleague of John Kelly (that’s how Kelly value comes about). To cut the long story short: they studied information transmission, extended the study into gambling, took the model into Vegas, won at Blackjack table and extended it into portfolio theory. John Kelly’s work is an extension of what Shannon (dubbed the father of information technology) discovered. They set up hedge fund called Princeton-Newport and made 28% p.a. over quite a long period of time.
The link is not just an equity curve generator. It’s actually a ‘position sizing’ generator based on a given trading system. Based on 2 IRR and 50% chance, the Kelly value gives you a 0.25 reading which is very important. It tells you , you should only bet 25% of your capital, to be safe against elements of ‘bad luck’ and ‘bad streek’ over long period of time. That’s the Key element of Kelly’s Criterion. You will notice that the better the IRR value the higher the betting quantum Kelly value will suggest but it will not tell you to bet all into 1 basket. Read a book titled ‘Fortune’s Formula’ .

]]> By: ryan http://www.bigfatpurse.com/2010/07/calculating-long-term-profitability-with-risk-reward-ratio/#comment-2347 ryan Fri, 30 Jul 2010 06:08:08 +0000 http://www.bigfatpurse.com/?p=2682#comment-2347 HI Alvin, It's interesting that you share this. I just finished reading a bit about the work of Claude Shannon, colleague of John Kelly (that's how Kelly value comes about). To cut the long story short: they studied information transmission, extended the study into gambling, took the model into Vegas, won at Blackjack table and extended it into portfolio theory. John Kelly's work is an extension of what Shannon (dubbed the father of information technology) discovered. They set up hedge fund called Princeton-Newport and made 28% p.a. over quite a long period of time. The link is not just an equity curve generator. It's actually a 'position sizing' generator based on a given trading system. Based on 2 IRR and 50% chance, the Kelly value gives you a 0.25 reading which is very important. It tells you , you should only bet 25% of your capital, to be safe against elements of 'bad luck' and 'bad streek' over long period of time. That's the Key element of Kelly's Criterion. You will notice that the better the IRR value the higher the betting quantum Kelly value will suggest but it will not tell you to bet all into 1 basket. Read a book titled 'Fortune's Formula' . HI Alvin,
It’s interesting that you share this. I just finished reading a bit about the work of Claude Shannon, colleague of John Kelly (that’s how Kelly value comes about). To cut the long story short: they studied information transmission, extended the study into gambling, took the model into Vegas, won at Blackjack table and extended it into portfolio theory. John Kelly’s work is an extension of what Shannon (dubbed the father of information technology) discovered. They set up hedge fund called Princeton-Newport and made 28% p.a. over quite a long period of time.
The link is not just an equity curve generator. It’s actually a ‘position sizing’ generator based on a given trading system. Based on 2 IRR and 50% chance, the Kelly value gives you a 0.25 reading which is very important. It tells you , you should only bet 25% of your capital, to be safe against elements of ‘bad luck’ and ‘bad streek’ over long period of time. That’s the Key element of Kelly’s Criterion. You will notice that the better the IRR value the higher the betting quantum Kelly value will suggest but it will not tell you to bet all into 1 basket. Read a book titled ‘Fortune’s Formula’ .

]]> By: Calculating Long Term Profitability with Risk Reward Ratio | TheFinance.sg http://www.bigfatpurse.com/2010/07/calculating-long-term-profitability-with-risk-reward-ratio/#comment-878 Calculating Long Term Profitability with Risk Reward Ratio | TheFinance.sg Fri, 30 Jul 2010 05:35:59 +0000 http://www.bigfatpurse.com/?p=2682#comment-878 [...] Let’s say you always follow this RRR for every trade/investment you make. And you are only right 50% of the time. How sure are you that over 10 years, your account will end up higher than you started? Take a look at the chart, which I generated based on these parameters. Read more… [...] [...] Let’s say you always follow this RRR for every trade/investment you make. And you are only right 50% of the time. How sure are you that over 10 years, your account will end up higher than you started? Take a look at the chart, which I generated based on these parameters. Read more… [...]

]]> By: Calculating Long Term Profitability with Risk Reward Ratio | TheFinance.sg http://www.bigfatpurse.com/2010/07/calculating-long-term-profitability-with-risk-reward-ratio/#comment-2346 Calculating Long Term Profitability with Risk Reward Ratio | TheFinance.sg Fri, 30 Jul 2010 05:35:59 +0000 http://www.bigfatpurse.com/?p=2682#comment-2346 [...] Let’s say you always follow this RRR for every trade/investment you make. And you are only right 50% of the time. How sure are you that over 10 years, your account will end up higher than you started? Take a look at the chart, which I generated based on these parameters. Read more… [...] [...] Let’s say you always follow this RRR for every trade/investment you make. And you are only right 50% of the time. How sure are you that over 10 years, your account will end up higher than you started? Take a look at the chart, which I generated based on these parameters. Read more… [...]

]]> By: ryan http://www.bigfatpurse.com/2010/07/calculating-long-term-profitability-with-risk-reward-ratio/#comment-877 ryan Fri, 30 Jul 2010 04:55:32 +0000 http://www.bigfatpurse.com/?p=2682#comment-877 Hi Alvin, Thanks for sharing. And thanks Teck Wee. Cheers. Hi Alvin,

Thanks for sharing. And thanks Teck Wee.

Cheers.

]]> By: ryan http://www.bigfatpurse.com/2010/07/calculating-long-term-profitability-with-risk-reward-ratio/#comment-2345 ryan Fri, 30 Jul 2010 04:55:32 +0000 http://www.bigfatpurse.com/?p=2682#comment-2345 Hi Alvin, Thanks for sharing. And thanks Teck Wee. Cheers. Hi Alvin,

Thanks for sharing. And thanks Teck Wee.

Cheers.

]]> By: Chemmie http://www.bigfatpurse.com/2010/07/calculating-long-term-profitability-with-risk-reward-ratio/#comment-876 Chemmie Fri, 30 Jul 2010 02:30:03 +0000 http://www.bigfatpurse.com/?p=2682#comment-876 I have been trading fx for about a year now...and it's getting no where....make lose make lose....the good thing is it's just a small part of my portfolio...then bad part is that my capital did not grow in fact there is a small loss....the good thing is according to dr alexander elder if you only lose 10% of your capital in the first year you are on track...the bad thing is I am so sick of it that I have stopped trading for now... I have been trading fx for about a year now…and it’s getting no where….make lose make lose….the good thing is it’s just a small part of my portfolio…then bad part is that my capital did not grow in fact there is a small loss….the good thing is according to dr alexander elder if you only lose 10% of your capital in the first year you are on track…the bad thing is I am so sick of it that I have stopped trading for now…

]]> By: Chemmie http://www.bigfatpurse.com/2010/07/calculating-long-term-profitability-with-risk-reward-ratio/#comment-2344 Chemmie Fri, 30 Jul 2010 02:30:03 +0000 http://www.bigfatpurse.com/?p=2682#comment-2344 I have been trading fx for about a year now...and it's getting no where....make lose make lose....the good thing is it's just a small part of my portfolio...then bad part is that my capital did not grow in fact there is a small loss....the good thing is according to dr alexander elder if you only lose 10% of your capital in the first year you are on track...the bad thing is I am so sick of it that I have stopped trading for now... I have been trading fx for about a year now…and it’s getting no where….make lose make lose….the good thing is it’s just a small part of my portfolio…then bad part is that my capital did not grow in fact there is a small loss….the good thing is according to dr alexander elder if you only lose 10% of your capital in the first year you are on track…the bad thing is I am so sick of it that I have stopped trading for now…

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