Trading systems should allocate trading funds to strategies to maximize trading profits in current market conditions. Some strategies perform well in specific market conditions such as topping while others will do better during strong directional markets. Shifting fund allocation to strategies matched to current market conditions will yield the highest profit. Operating multiple strategies increases risk of duplicate risk exposure that must be controlled by cross strategy risk management rules.
Ed Thorp is credited with adapting the Kelly criterion otherwise known as the Kelly betting system to determine how much to invest in a given stock based on the confidence of your selection criteria. He published this in Beat the Market. There is a lot of published art for the Kelly criteria but a simple version is also described in Thorps book “Beat the Dealer”. Continue reading “Allocate Trading funds to strategies based on market conditions”