What are the limitations of using the Kelley criterion in determining position sizing for cryptocurrency investments?

1 answers

• mr. suluAug 20, 2024 · a year ago
  The Kelley criterion can be a useful tool for determining position sizing in cryptocurrency investments, but it is not without its limitations. One of the main drawbacks is that it assumes a constant probability of success and a constant return on investment. However, in the cryptocurrency market, these parameters can vary significantly over time. Cryptocurrencies are highly volatile and subject to sudden price swings, which can make it difficult to accurately estimate the probability of success and the potential return. Additionally, the Kelley criterion does not take into account factors such as liquidity constraints, transaction costs, and market impact, which can have a significant impact on the actual performance of a trading strategy. Therefore, while the Kelley criterion can provide a starting point for position sizing, it should be used in conjunction with other risk management techniques and adapted to the specific characteristics of the cryptocurrency market.
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