Hacker News Reader

Comment by roenxi | Hacker News Reader

We had an article on the Kelly criterion just the other day that handily refutes your point.

Even if bitcoin is certain to crash, without a deep understanding of when (and by extension, how) a naive futures trader still runs a good chance of being eaten alive, or making poor returns.

Stating bitcoin will crash is a bit like the conventional wisdom that smoking is bad for your health. One can reasonably be very confident in the truth of it without being confident in specific odds on any bad outcome.

View on HN

"The market remain irrational longer than you can remain solvent."

Or maybe you were just wrong and not everybody else? Just a thought. (I know this is a quote from Keynes)

Care to link that? I am pretty sure the Kelly Criterion is a betting strategy. What does that have to do with bitcoin?

Edit: Found it. https://rhsfinancial.com/2017/06/line-aggressive-crazy/

I hope you really think about applying the Kelly Criterion to trading bitcoin futures and hope you realize that the person completely ignores friction(transaction costs),and does not show a sharpe ratio( who cares if you beat a benchmark with 10x the risk).

"[In November 2000.] Those kinds of times… when everyone is running around like a chicken with its head cut off, that's pretty good for us… "~Jim Simons (https://en.wikipedia.org/wiki/Renaissance_Technologies)

The Kelly Criterion is a betting strategy that, given the probability and payoff of different outcomes, tells you what percentage of your bankroll to bet.

That is true if you have arbitrary knowledge that says that at some point in the future, Bitcoin is certain to crash.

If you're able to associate some timeframe to the idea that with p = 1 Bitcoin will be at half the value it currently is, the Kelly criterion suggests you should be quite a bit of the farm. Applying the Kelly criterion in supposed p = 1 situations (e.g. "Like it or not, [the market will crash]") is pretty invalid.

Reply on news.ycombinator.com