Q: If managers are betting more on certain trades, in a systematic way, then how do they decide when to bet more or less? I assume this is a matter of a higher odds trade based on historical testing, but I am not completely confident in my conclusion here.
A: You are right. There are certain trades that have higher probabilities, but have varying degrees of payoffs. Thus, you have to adjust your position size so that you always trade with the highest mathematical expectation. You can also study price and volume history and measure the average short-term, intermediate-term, and long-term $ and % moves.
