Hey Micah,

Thanks for the link. I’m not familiar with the Kelly betting strategy, but as you say, it tries to optimize for maximum return.

This is a similar concept to Optimal F by Ralph Vince. Here’s a good explanation of what happens when you try to optimize for return with Optimal F.

I personally think that while optimal bet size can increase monetary capital faster, it is at the great expense of mental capital. So it might be OK for automated systems, but it’s terrible for discretionary systems. I believe that it’s better to focus primarily on limiting the drawdown, instead of maximizing the return. That will keep your head in the game and ultimately lead to trading longevity.

This reminds me of Edward O. Thorp’s book “A Man For All Markets”. In it, he had a very small discussion about position sizing based on the Kelly Strategy (I believe that was the name, I’m going from memory). Now, Thorp was a math genius that got his start in casino games like blackjack and roulette before parlaying his skills in the stock market.

But, he recommended the Kelly strategy, which required the same parameters: account balance, win rate, and the “odds offered”. I was able to find one kelly calculator at http://www.albionresearch.com/kelly/.

In your experience, how would your calculations compare to something like this Kelly criteria?