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Very important concept in less leveraged markets (such as cash stocks). Capital needed for a trade, it can be equally important to probability and R/R.
This trade for example is quite efficient, it provides 6Rs while also having a -50% stop.
This trade for example is quite efficient, it provides 6Rs while also having a -50% stop.
Risking 0.5 Kelly on a 100k account, you need only allocate $13k to produce this return.
My $FAT trade represents the other side. To achieve 0.5 Kelly on this, I would need to allocate 73k of the 100k account. Tying up 73k (or 36.5% if using reg t margin).
My $FAT trade represents the other side. To achieve 0.5 Kelly on this, I would need to allocate 73k of the 100k account. Tying up 73k (or 36.5% if using reg t margin).
The tighter stop also creates a much greater slippage risk , and overnight risk. For that reason and the tie up, I would never allocate anything like 70% to a position regardless of stop, but it means while the FAT trade has a very high R/R, it would produce a much lower $ return
All of this heavily applies to altcoins, which generally are not available with significant leverage, or any at all with a decent size. Sometimes the highest R/R trade, is not the one that actually provides the best return.
