$XRP Long position trade entry using Kelly Criterion bet sizing

7天前

I am bullish XRPUSD with upside targets of $5, $10 to $15. Those are the 3 main target levels. 

$5 target, 99% probability of being hit, IF price breaks out above $2

$10 target, 30% probability of being hit

$15 target, 10% probability of being hit


Selling may change depending on market conditions.


I consider this trade a combination of investment, trade and bet. Think of it like a call option with no expiration date. It effectively goes to 0 or it breaks out of the range and hits my price targets.

XRP

Reasons for Bullish bias:

Crypto and BTC is in a confirmed bull market uptrend on the monthly

Public ignores and hates it since 2017

It’s listed on Robinhood

Reasons for Bearish bias:

It’s a premined shitcoin that can go to $0.

Unknown variables:

No specific timeline on when XRP might or might not pump.


Remember to size your position correctly using Kelly Criterion.


The variables are your reward to risk ratio and the probability of hitting your target.

The reward to risk ratio is between 9x to 33x. Let’s conservatively use a 10 to 1 reward to risk ratio.

Based on subjective factors, I estimate the probability of a breakout pump to be 50%.

Let’s plug this into an online Kelly Criterion calculator to see how much it tells me to bet.

It’s not recommended to bet full Kelly as that maximizes your volatility despite still being +EV. You want the proper balance between lower volatility and yet still high enough +EV. General guidelines are between 0.25 Kelly to 0.50 Kelly for the bet sizing.

I like to YOLO so I bet ½ Kelly. I recommend betting ¼ to ½ Kelly with the portion of your portfolio you have dedicated to shitcoins. I recommend a crypto portfolio of at least 70% to 80% bluechips which are BTC and ETH. Those are the only 2 cryptocurrencies that are backed by institutional ETFs.

Example you have a $10,000 crypto portfolio. 20% allocated for shitcoins which is $2,000.

A ½ Kelly bet would be 22.5% of 2k. That is a $450 bet size.

If you lose your bankroll drops to $9,550 which is a 5% loss.

If you win, your bankroll grows to $14,050 which is a 40% return.

Those are not bad results. Use the Kelly Criterion calculator to play around with different probabilities and upside targets. It’s better to be conservative with the upside targets and probability of success.

Assuming we get a confirmed price breakout. I will detail the XRP Long exit strategy in a follow up post.

See link in my signature for more detailed trade strategies.