Kelly capital allocations update

Monday, 26 April 2010 12:51

Here is an updated version of the capital allocations to trades based on Kelly Criterion. There are two differences with the previous version: first, the results for the past 10 days have been incorporated; second, spread is now taken into account while determining winning and losing trades for the conditional probability estimation according to Kelly; third, only trades passing the Level 0 Trigger enter the algorithm.

Table 1. Table 1 gives trading capital allocation according to Kelly Criterion. The allocation depends on the strength of the forecast move, reported as next-current in the system output. The distribution of this quantity for each forex pair is split into four quartiles, and their boundaries are given on the quartile boundaries line. The allocation is the fraction of capital to risk on the protective stop, assuming that this is the only trade submitted. "-" marks the situations where staying out of the market is indicated. These allocations are calculated applying the selective condition of L0 trigger (predicted moves for low, high and close all in the same direction).


Q1
Q2
Q3
Q4
AUD/USD quartile boundaries -0.00364 -0.00070 0.00192
allocation, % - 4.8 6.1 8.9
EUR/USD quartile boundaries -0.00518 -0.00094 0.00280
allocation, % - - 2.5 9.2
GBP/USD quartile boundaries -0.00657 -0.00098 0.00415
allocation, % - 8.8 19 -
USD/CAD quartile boundaries -0.00525 -0.00141 0.00233
allocation, % 11 4.3 - -
USD/CHF quartile boundaries -0.00543 -0.00147 0.00299
allocation, % 3.8 4.9 2.6 -
USD/JPY quartile boundaries -0.449 -0.083 0.273
allocation, % 4.2 - 6.9 -
AUD/JPY quartile boundaries -0.446 -0.107 0.209
allocation, % - - 25 19
CHF/JPY quartile boundaries -0.372 -0.054 0.230
allocation, % - - 5.0 1.5
EUR/AUD quartile boundaries -0.00875 -0.00363 0.00121
allocation, % 2.9 0.0 - 2.9
EUR/CHF quartile boundaries -0.0027 -0.0013 0.0013
allocation, % 0.4 9.4 1.1 -
EUR/GBP quartile boundaries -0.00208 -0.00072 0.00098
allocation, % 2.2 1.1 - 18
EUR/JPY quartile boundaries -0.573 -0.055 0.362
allocation, % - 0 11 6.8
GBP/CHF quartile boundaries -0.00746 -0.00178 0.00410
allocation, % 12 7.3 - 2.6
GBP/JPY quartile boundaries -0.854 -0.173 0.483
allocation, % - 7.6 7.1 6.5

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