Anyone Know the Name of the Position Sizing Formula? - futures io
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Anyone Know the Name of the Position Sizing Formula?


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Anyone Know the Name of the Position Sizing Formula?

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  #1 (permalink)
 aotc 
New York NY
 
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A while back I remember reading about a formula for position sizing named % K or something similar, where if one knows their approximate probabiliy of success, account size, and risk reward as well as perhaps some other variables what the optimal risk or position sizing would be. I have been searching on the internet for this, but cannot find it. Does anyone know what the name of this formula/method is? Thank you!

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  #2 (permalink)
 planetkill 
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Kelly criterion
aotc View Post
A while back I remember reading about a formula for position sizing named % K or something similar, where if one knows their approximate probabiliy of success, account size, and risk reward as well as perhaps some other variables what the optimal risk or position sizing would be. I have been searching on the internet for this, but cannot find it. Does anyone know what the name of this formula/method is? Thank you!


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 aotc 
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planetkill View Post
Kelly criterion

Thank You!

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 SBtrader82 
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Be careful about Kelly Criterion, most people don't have enough math background to understand where it comes from and how theoretical it is.
The result is extremely theoretical, as a former phd student in information theory I understand how the formula is derived. It is very interesting and completely useless.
Basically all assumptions behind Kelly are not true in reality, in particular the assumption about the stochastic process representing the market price probability distribution.

Be sure to understand Kelly's limitations before using it.

aotc View Post
A while back I remember reading about a formula for position sizing named % K or something similar, where if one knows their approximate probabiliy of success, account size, and risk reward as well as perhaps some other variables what the optimal risk or position sizing would be. I have been searching on the internet for this, but cannot find it. Does anyone know what the name of this formula/method is? Thank you!

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unison31
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Additionally, even if you know all the parameters (for example, in a coin toss game), most people will still feel that the full Kelly bet has too much return volatility.

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