For 35 years, traders have debated the feasibility of this book.
The Pros:
The Cons:
Vince addresses the last point by introducing "Secure f" – a lower, more conservative fraction that reduces drawdown by 90% while only sacrificing 20% of the growth. For 35 years, traders have debated the feasibility
[ \textG(f) = \left[ \prod_i=1^n \left(1 + f \times \fracT_iW\right) \right]^1/n ]
Where:
( T_i ) = profit/loss of trade ( i ) (signed)
( W ) = worst-case loss in the series (as a positive number)
( f ) = fraction of capital allocated
( G(f) ) = geometric mean.
[ f = \fracBP - QB ] (Where B = odds received, P = probability of win, Q = probability of loss) The Cons:
Vince was ruthless about the industry:
"Most 'money management' advice is folklore dressed in suspenders and a cheap cigar. It is not mathematical; it is superstitious."
He pointed out three fatal mistakes:
| Kelly (original) | Ralph Vince’s Optimal f | | --- | --- | | Requires known probabilities & payoffs | Uses historical trade stream | | Assumes Bernoulli trials | Accepts any distribution | | Optimizes growth rate | Maximizes geometric mean | | Kelly fraction = ( (bp - q)/b ) | f from iterative search over trades | | W = loss if bet lost | W = worst loss in sample |
Vince’s method is empirical Kelly for trading.