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Let’s apply Kelley’s formula to the above 3 examples with PE =0.39; 0.56 and 1.13 Example 1 Average win: $152 Average loss: $123 Profitable Trades: 62% А = W/L = 153/123 = 1.24 PE = 0.39 K = PE/A = 0.39/1.24 = 0.3145 K = 0.31 this gives you a percentage of how much of your capital should be behind each and every trade. In our case, this is about 32%. If we start the Dukas contest with $ 100, 000 then we can risk 100000 * 32% = $ 32 000 If we trade EUR/USD where margin is $ 1,300 $ 32,000 / $ 1,300 = 25 lots where 1pip is equal to $10. At Dukas platform 2.5 I. How to use the Money Management Formula. As I mentioned in the beginning it is not necessary to be a mathematician and remember all the formulas that we will encountered in the article. I have prepared the Money Management Calculator for you (it's as easy to use as a regular calculator). With it we can easily not only select the system with PE, but also apply the adequate money management process to that system. What gives us the calculator? 1). Positive expectation of the system that we test (A good system is one that has a PE> 0.5). 2). The percentage of our capital, that should be behind each and every tra…
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eagl avatar
eagl 17 Oct.

Good work with the article, but I would not recommend the full Kelly in real-life trading. It risks too much such that ruin of capital seems inevitable if you use it long enough. Maybe a quarter Kelly will work nice in real life.

cleaner avatar
cleaner 21 Oct.

Hi!
I 100% agree with your recommendation
In Part 2 of this article it was noted:
“AMOUNT (millions) = 4.59
I personally prefer not to trade the amount 4.59 with one pair. I prefer to split it into 4 different pairs each equal to 1.15, significantly reducing the risk.”

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When selecting a trading system, you should know as much as if you had already created one I will show you how to find the best trading system available. And I will do this without you having the need for years of experience. With my method, you’ll be able immediately to filter the top percent winning systems. Further in the article, I will answer the following questions: I. Where to search for our system. II. How to choose a system with PE (positive expectation). III. How to apply adequate Money Management into the System with PE IV. How to use the Money Management Formula. (Money Management Calculator .It is not necessary to be a mathematician and to remember all the formulas that we will encounter in the article. I have prepared for you Money Management Calculator. It is as easy to use as a regular calculator) V. How to determine the size of your account. I. Where to search for our system For a long time, many people have realized that the world of trading systems is filled with fraud and delusion. How to separate a huge amount of trash Trade systems available on the internet, and only concentrate on those that work. Most of the professional traders divide systems…
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doctortyby avatar
doctortyby 16 Oct.

I like the positive expectation formula and concept. It actually uses the win/loss and reward/risk ratios. Simple and comprehensible article. Keep writing

Ivolux avatar
Ivolux 18 Oct.

PE formula is interesting and great for comparing strategies, don't really get the Kelly money management formula as it does not take in count possible drawdowns

SpecialFX avatar
SpecialFX 26 Oct.

Articles with mathematics are almost always interesting to me :) I agree with Ivolux though, I don't like the Kelly formula, there are better ways to calculate how much to trade and risk. The Kelly formula may make you take huge risks, depending on the circumstances. Besides, it was initially created for gambling, and is only valid when the game is played many times over, with the same probability of winning and profit each time, like throwing a dice, for example. Which is something that does not happen in trading.

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