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Talks and Contributions Money Management system using il di Kelly Link in Italian http://www.arezzotrade.com/tutorial/moneymanagement FROM THE BEAUTIFUL LANGUAGE TRANSLATION OF DANTE .. .. (By Ceci) Money Management using the Kelly system. We often hear about the importance of diversification, risk management. How much money should be used in an operation? What percentage of our portfolio can be used in one title? When we sell or buy? These are all questions that we can respond by identifying and seeking implement a system of money management. This page believe the Kelly Criterion, one of the many techniques that can be used to manage our money effectively. History John Kelly, who worked for Bell Labs in AT & T, originally developed the formula for which is known for studying the problem of noise signals were presented in long distance telephony. After the publication of the method, however, the gaming community gaming PROMOTE realize the potential of the method when applied to the study of optimizing the size of the bet at the races horses. The system allowed players to maximize the bet optimized for a long time. Currently, the Kelly formula is used as many as managaement money system not only gambling but also for investment. bases There are two fundamental components that make up the Kelly Criterion: 1.La probability of winning (winning probability) --- The probability, that is, each individual transaction will result in an outcome positive (gain) on average 2.Ratio winners perderores average (winAv / lossAv ratio) --- The average value of deals closed winners divided the mean average operations closed at a loss. These two factors are embedded in the Kelly equation: Kelly% = W - (1 - W) / R where: W = Winning probability R = WinAverage / lossAverage ratio The result is the percentage of Kelly (Kelly %), we will examine below Kelly The system can be used by following these simple steps: * Record your last 50-60 operations. You can be the list provided by your broker or if using a mechanical trading system can make a back testing and recording the values \u200b\u200bobtained. * Calule the "W", ie the probability of winning. To do this, divide the number of operations that generated profit for total operations edectuadas. (Positive and negative). The result is a number between 0 and 1 (eg 50 operations in total. 30 closed with gains and closed with a loss 20 W = 30/50 = 0.6). * Calculate "R", this is the report "winAv / lossAv." To do this, divide the average value of the revenue generated by the positive operations by the average value of loss. (Eg average income transactions = 500 €; average closed operations at a loss = 300 €, R = 500/300 = 1.66). * Insert W and R values \u200b\u200bobtained in the equation of Kelly K% = W - (1 - W) / R. Mark the result interpretation of the results The formula produces results in a number less than 1. This represents the size of the position to be assumed (?) In the market, the percentage of portafolo, ie, which must continue operations. For example, if the result of the equation was 0.05, now must use 5% of its portfolio for each position arriezga take on the market. This system, in substance, suggests that you should "diversify." The system also requires common sense. One rule to keep in mind independienetemente of what may be using their statistical data Kelly's formula is not inveritr never more than 20-25% equity in a single instrument. Is ranked higher than this percentage is too high a risk to sustain in the long run. The system is efficient? Kelly system is based on the application of a mathematical formula, but some may wonder if a system created to study phenomena telefóncias line noise can also be applied to the stock market. Showing growth simulated trading account based on the mathematical model can demonstrate its reliability. Necessarily, the two required variables must be inserted correctly and is based on the assumption inverson keep fixed the risk parameters (variables) assunti (?) in origin. Here's an example: In the picture above we can see is the development of 30 simulated trading accounts, its 453 operations, with the representation of your equity curve. " Originate the simulation with the value 100. The parameters adopted are: * The average individual loss is equal to the average individual gain. (Win / loss = 1) * the trade hacerun probabildad of winning is equal to 60% (win prob = 0.6) The Kelly Criterion suggests, in this example, to allocate no more than 19.9% \u200b\u200bof available capital (bet-size) to execute each of the operations (after a maximum of 5 operations on various instruments at the same time.) The result shown in the picture is a positive return over a long period on all accounts of the 30 traders in this example (note, however, some negative returns over a short period with a minimum of 86, corresponding to 14% loss) the maximum "return" dummy at the end of the 453 operations was 124% (beginning 100 and end 224). Why, then, not everyone wins? No money management system is perfect. This system will help to diversify the portfolio in an efficient, but there are many things the system can not do. You can not select the title winner (stock picking), it can not assure you that you continue to make trading with the same parameters as usual (compare win / loss and winning probability) and can not predict the risks of market crash. In addition, there is always some level of luck or chance in the market that can alter the perfect performance of each. For example, consider now the image above. Clearly with the best "return" has been simulated with 124% but about 50% worse. Between the two accounts have the same output parameters of the study, but the chance (randomness) in the succession of loss and may GAINS create temporary oscilasciones the values \u200b\u200bof the same accounts. Conclusion The money management can not always be assured of getting the same positive return on their operations, but may help to limit and contain losses and uptimizar and maximize profits through efficient portfolio diversification. The Kelly Criterion is one of the many models that can be used to help them do this: diversify. What evidence the java applet up here? This applet simulates the equity curve (yield curve) of a hypothetical account in the long run, when the parameters being applied systematically trading report win / loss and the win probability. A whole curve consists of approximately 450 times (operations simulated trades). A random generator decides whether the trade will be a winner or loser based on user-defined parameters. The equity curve is drawn according to the statistical parameters indicated. l What is "Win / Loss ratio"? is a number obtained by dividing the average earnings of the operations that are positive for the average value of the loss of operations that are in loss. Example: if, on average, your profit is $ 500 for a transaction and your loss is $ 350 for a failed operation, the "Win / Loss ratio "will be 500/350 = 1.42 What is the parameter" Win Prob "? Win Probability. is the number that represents the percentage chance that your transaction is winning. For example, 100 operations are done and then counted 61 winners, now your "Win Prob" will be 0.61 (61/100 = 0.61) What is the parameter "Lines Qty"? is the abbreviation for "Lines quantity", ie "number of lines." is the number of equity lines to be generated and drawn CSER simultaneously on the chart. This role offers the opportunity to view and analyze various scenarios (what if) for different levels of chance (random) in the sequence of positive trades - trades negative. In other words, if your system is victorious over 99.9% of the time, there is always a degree of possibility to which may be raised, for example, 10 consecutive stop loss. Proper money management strategy is to survive the market in order to be victorious in the long term, without being left out because of excessive lowering of own portfolio. What are the parameters of "Kelly Val" and "Math Expect? Kelly Value and Mathematical Expectation of the system. The first determines the percentage of your portfolio that should be used in a single trade to maximize the return on long-term portfolio and to minimize the risk calculated based on the parameters that have been inserted in the simulator. The second parameter, Mathematical Expectation, is interpreted in this way: if a positive number then your system is historically winner, if it is negative then you better find another strategy ............... .................................................. . winners 2.Ratio average / average sellers (winAv / lossAv ratio) - I think here must mean that losers Salu2 Ricardo Kelly Kelli is in Italian? Outside 
WTF is advisable to use the Kelly system if all the money in one market as it is quite aggressive and a slump or incorrect assessment of the probability of winning you can quickly liquidate an account. In this case an alternative is to use diluted, for example take half Kelly 
or assign to trade half the system proposed by Kelly. Another alternative is to use multiple accounts of non-correlated markets, assigning the same fraction to each of them.
WTF is advisable to use the Kelly system if all the money in one market as it is quite aggressive and a slump or incorrect assessment of the probability of winning you can quickly liquidate an account. In this case an alternative is to use diluted, for example take half Kelly or assign to trade half the system proposed by Kelly. Another alternative is to use multiple accounts of non-correlated markets, assigning the same fraction to each of them. Verio
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