These results look much better, with the best run producing an average prof-
it per trade of $1,064,251, while the worst run produces an average loss of 97
cents per trade. Even in this case, however, a slight (4 percent) chance exists that
the strategy will end up in negative territory. The charts in Figures 24.1 and 24.2
were produced with a simple spreadsheet, of which you can see a small part in
Figure 24.3.
To recreate the spreadsheet in Figure 24.3, type in the following formulas
and values:
In cell D3: Type in the ratio between the average winner and average loser.
In cell E3: Type in the percentage of winning trades.
In cell F3: Type in the formula E3(1E3)/D3.
In cells B6 to CW6: Type in the value 100.
In cell B7: Type in the formula IF(RAND()<$E$3,1$B$3*$D$3,1
$B$3)*B6, and drag and fill it into all cells down to CW1006.
In cell B1008: Type in the formula (B1006100)/100, and drag and fill it
into all cells to CW1008.
In cell H3: Type in the formula MAX(B1008:CW1008).
In cell I3: Type in the formula MIN(B1008:CW1008).
In cell J3: Type in the formula AVERAGE(B1008:CW1008).
In cell K3: Type in the formula STDEV(B1008:CW1008).
In cell L3: Type in the formula J3/K3.
In cell M3: Type in the formula COUNTIF(B1008:CW1008,">0").
In cell B3: Type in the value in cell F3.
Ideally, the better a strategy is at picking tops and bottoms, the more you
should risk per trade. However, the more you risk per trade, the more you stand toCHAPTER 24 The Kelly Formula 293
FIGURE 24.3
Spreadsheet data for Kelly formula in Figures 24.1 and 24.2.