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A student of IT in upstate New York put this paper online.
You can find it in Postscript at:
http://ftp.netheaven.com/josh/kelly.ps
of in PDF at:
http://ftp.netheaven.com/josh/kelly.pdf
or you can visit the student's page at:
http://www.racing.saratoga.ny.us/
I have done much research into applying the Kelly Principle to
wagering on horse races. The method is very heavily dependent
on assigned probabilities.
Actually we could get into a philosophical discussion on
what probability IS, but lets just say the method described in
the paper can apply to trading if you accept "probability" as
YOUR probability a stock will reach a price in a specific period
of time. Once you have this number you can adjust your purchase size
based on your bankroll and the expected gain from the purchase
(investment) based on the Kelly Principle.
I should caution, since this is so dependent on probabilities,
and the FULL Kelly method can result in substantial portion of
your cash going into a stock, small mistakes in probabilities
can result on accelerated depletion of your bankroll.
Looking forward to discussing this further if anyone finds it
of interest, or applicable to stocks. I was not on this list when
it was last discussed, so forgive me if this is a well covered topic.
Bill Gillock
bgillock@xxxxxxxxxxxxx
Charles wrote:
> "A New Interpretation of Information Rate".....by J.L. Kelly, Jr.
> which appeared in 'THE BELL SYSTEM TECHNICAL JOURNAL, July, 1956.
Walt Downs wrote:
>
> Hi all,
>
> A few month's back some RT's were discussing the basics of the
> "Kelly Principle", a form of statistical adjustment that might
> have value in relation to trade size.
>
> I am interested in the original source of this principle. I.e.,
> the full name of the author and what book this principal is
> discussed in.
>
> Thanks,
> Walt Downs
> CIS Trading
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