Forex Automaton as a Shannon's communication channel. Introducing Kelly Criterion.

The intention of this post is to tie together several topics which appeared on my radar screen in the course of the trading system optimization. First, it has been understandably hard to fully rid oneself of vestiges of the mainstream financial theory based on the postulate of market efficiency, while building a wealth-generating tool relying explicitly on demonstrable market inefficiencies. The realization that Sharpe ratio does not let one make an objective choice of a portfolio was there from the beginning, and I recall perceiving this fact as a "necessary evil". Then came the understanding of the fact that an artithmetic average of returns gives one a biased picture of long-term return, and consequently, Sharpe ratio is built around biased quantities.

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