Kelly Ratio

By Ahmad Hassam

In one of my articles, I talked about the criteria for developing a good mechanical trading system. There are many factors to consider while testing and evaluating a mechanical trading system. The important question is how to develop a trading system, evaluate it and then apply it with real money.

We need to not only know that the trading system is profitable for each trading system that we test. But we should also know whether it is profitable with limited equity swings. We should know does the trading system have excessive drawdown periods?

Three of the most important elements of mechanical trading systems are: 1) Clear cut rules for entry and exit for each trade. 2) Rules for exiting at profit targets and 3) Rules for exiting at loss targets or how much loss is permissible.

When a string of multiple winners and substantial profits accrue, does the trading system experience periods of time that result in significant losses that give back those gains? Do losses exceed gains more than what is tolerable?

John Kelly while working at AT&T Bell Labs had developed the formula in 1956 now known by his name. A money management tool used by system traders is the Kelly Formula or Ratio. Most traders do not know when to correctly add on a trading position.

It soon became popular with the gamblers. Gamblers realized its potential as an optimal betting system in horse racing. This formula enabled gamblers to maximize the size of their bets on consecutive races.

Gamblers would use the Kelly Formula to determine how much to parlay winnings into the next bet. Kelly Formula is used by many traders to determine how much money to place on the next trade taking into account the historical performance of the trading system.

Kelly Ratio is given by the formula: K=W-[(1-W)/R] where K is the Kelly Ratio in percentage. W is the winning probability and it is the probability that any given trade that you make will return a positive amount. R is the Win/Loss Ratio and it is the total positive trade amounts divided by the total negative trade amount.

Suppose K is 25% then you can risk 25% of your account on each trade. Kelly Ratio tells you what you should ideally be willing to risk on each trade to maximize your total returns in terms of the percent of your total account.

Many traders argue that the Kelly Formula gives too high a figure. To be on the safe side you should half the ratio. If K is 25%, you should half it to 12.5%. It means you should not risk more than 12.5% of your account on a single trade.

Kelly Formula can help you in comparing two trading systems and deciding which one is better in the long run. You should look for a trading system that has the highest Kelly Ratio.

Back testing is used to evaluate a trading system and show the strength and weaknesses of each trading system. You can use the back testing results in the Kelly Formula.

So back testing combined with the Kelly Formula can help you achieve in most market conditions, the highest trading profits with the lowest risks by choosing a trading system that is the best. - 23196

About the Author:

Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading stocks and forex. Know The Candlestick Patterns. Learn Forex Trading.

Don't Give In To Foreclosure

By Doc Schmyz

Foreclosures are a nasty "monsters", apart from the worry and stress of possibly losing all you own, is the fact that you lose all control over the sale process. Not to mention your self image takes a heck of a beating.

The painful honest truth is that the finance company is only looking after it's own interests. There is no emotions involved here and they will take offers that do not even fully cover the debt, let alone recover some of your equity. To them this is just business.

FIGHT THE MONSTER. Take on another job. Scrape up the cash the best you can. Everyone has ways we can cut back or living expenses and increase our income a little. Don't let yourself fall victim to your pride...yes this means you delivering pizza is indeed an option.

Think outside the box, maybe attempt to sell the property yourself. If the property market is difficult, advertise to exchange/swap your house for something cheaper. Look at how the property could earn you money. Maybe it has an apartment attached that could be rented out. Maybe it has a room at the back of the garage to rent out. Perhaps it might have an extra garage to rent out. If it is a big house maybe you could take in lodgers or students and charge them for room and board. All these little things will help to pay off your mortgage. Your still in charge of how the situation will end up.

Another thing to look at is simply getting another loan and paying off the original mortgage. Look at ways to restructure the loan so that your repayments are lower than you are currently paying. You could pay over 40 years instead of 25 years. Maybe you could have half the loan over 40 years and half on interest only repayments with the ability to reduce the principal with lump sum repayments when you have the extra funds available.

If a foreclosure is getting closer and you have been unsuccessful in averting it. You can accept the inevitable or you can fight the " monster" and take drastic action. However, if it means saving the equity in your house it may be worth it. - 23196

About the Author:

Doc Schmyz has invested all over the US and Mexico. He built a free free website shares Real estate investing information for all over the US. Find Real estate investing information by state

Get your Property in Perdido Key Florida

By Chris Linch

If I was going to buy a condo somewhere in this country it would be Perdido Key Florida. There are a few reasons. Number one is that there are very few hotels in the area, so you can rent them out. The view on the shoreline is just gorgeous over the Gulf of Mexico. You are close to both Alabama and Florida and even Mississippi.

I one time traveled to this area for the Mullet Toss. It is a beach gathering where people throw a fish from Florida to the Alabama line. It was a extraordinary beach party, with a lot of stuff to do. The thing I love about this area is that it is so laid-back. You can go all over the place in just a bathing suit, or a t shirt. You dont need to be all fancied up to go out to eat.

If you are looking to travel to this area you are going to rent a condo. There literally are no hotels in this city that I am aware of. Everything there is vacation rentals. This is not a unpleasant thing, because you can in fact get a nice place right on the beach with a terrace for less than you can get a hotel room.

There are many property managers that run the condos, so if you are looking for an asset this is a great place to invest. You can by a condo, and then take a vacation to it for a few weeks a few times a year. Then the other 48+ weeks you can rent it out like a hotel room by hiring one of these property management firms.

The only competition you have is other condo owners. This allows you to travel free, and you can actually depreciate the cost of the condo over time since it is an investment property.

There are some tips though if you can invest and you are just traveling to the area. Most of the hotel websites that rent hotels, also rent condos in the area just like hotel rooms. You can save a lot of cash by simply getting a condo this way.

Simply visit a discount hotel site and search for Perdido Key Florida and book yourself in one of those beach front condos. Keep in mind they are STILL rebuilding from the damage of Hurricane Ivan. It is still just a beautiful place to stay. - 23196

About the Author:

If you are in the market to vacation you can get your Cheap Hotel Rates at homeshophotels.com where Chris is a content publisher. You deserve to save a little money, and there is no better place to do it.

Becoming a Millionaire in a Virtuous Way

By Mitchell Derosa

If you find your financial life boring, you can break the monotony by having new ideas and methods. Apart from this, persistence and patience always get good rewards.

Variety is the spice of life, and doing any one thing repeatedly makes life quite boring. When your days and nights are consumed with get rich quick schemes, there's no time left to enjoy the things in life that really matter -- the things that don't require a million dollars to benefit from. There's no shame in wanting to increase your net worth, but there is a right way and a wrong way to go about it. Money is meant to symbolize the value of your work in the lives of other people, and that's what it does mean when you find ways to earn money by adding value to others' lives.

While it's possible to get lots of cash quickly, the safer and more reliable route is to be patient and intelligent about it. By working hard and making smart choices, the odds of earning your first million are on your side, and you'll be more likely to continue making money for a lifetime.

Working hard is not always enough to be a millionaire; you have to work hard at smart things. Otherwise, many of the world's poorest people, who work very long hours, would be millionaires already, and they clearly are not. In other words, you need to work hard at endeavors that will eventually make you money even while you are not present and working (otherwise known as passive income).

There are some lucky people who make it big quickly through a lucky streak at the casino or an inheritance. However, getting a big sum of money overnight is not as satisfying as it may sound. Because you didn't work hard for it, the same dollar will not be worth as much to you as it would otherwise. You'll be more apt to spend it frivolously instead of on important things. Remember, a one-time financial win makes no promises of future financial rewards, while hard work and dedication are more likely to lead to a recurring revenue stream. It takes most people many years -- decades, even -- to reach their financial goals, but that makes them all the more worthwhile. You must plan for the long-term.

The best way to getting your first million dollars is to work for it. Yes, it may take years before you see it, and there's always the chance that you'll never see it at all; but if you don't start working for it today, you're practically guaranteed to fail. You can wait around for the money to fall into your lap, or you can head to where the money is by providing real value to others that they're willing to pay for. Whatever you do, don't give up; there are thousands of millionaires in the world, and every reason in the world why you can be one, too. Wealth is best enjoyed when it's earned through patience and persistence; best of all, those habits will serve to make your life more enjoyable no matter how much money you have. Falling just short of earning a million dollars is still a world better than just scraping by, or being in debt. Start today, and you'll see your first million sooner than you think. - 23196

About the Author:

To get more info on financial news, just go to the website that has it all to become rich.

Currency Exchange Services Are A Super Way To Ensure Your Safety On Holiday.

By Abby H Naylor

Given that the world seems to have shrunk there is often an assumption that credit cards and other ways of sending money have replaced foreign currency exchange services all over the world. Credit cards and debit cards are certainly a good replacement for these services so a lot of people don't use this old method anymore.

Although credit and debit cards can be of enormous use, there are times when things do go wrong and at that stage, people need to be able to access money fast and that is the beauty of foreign currency exchange services. If you know someone who has gone travelling then you may think about what could happen if things went wrong. Losing your credit card while abroad is a common nightmare.

And just think how hard it is to be so far away from home and not be able to get any money. You are thousands of miles away, how can you help? Actually you can sort it really easily by using currency exchange services. The cash can be there almost instantaneously.

Foreign currency exchange services can really help someone in his or her hour of need, but they aren't just there for the nasty things, they can also be used for other really nice things. Many people prefer to do business with a transfer of cash, because they distrust giving credit card details out to strangers.

Foreign currency exchange services can also be used to make sure that your overseas family gets money at Christmas or birthdays. You needn't worry about postal deadlines, because it all is done within a matter of minutes. This is what makes foreign currency exchange services so popular.

If you own property overseas, then you will also find that repairs and property taxes can be paid with foreign currency exchange services, easing any difficulties with paying people abroad. These services are still as popular as ever and money is sent to the far reaches of our planet, every hour of every day.

The sheer volume of transfers means that the process has really been speeded up and it is also very cost effective. Foreign currency exchange services are very easy to organise and another bonus is that they are cheap because commissions aren't as common place as they are with other ways of sending money.

Foreign currency exchange services will give you security and knowledge that wherever you need to send money, it can be done incredibly easily and cost effectively. These services can also buy you some of the finer things that money can buy, so use your imagination, to see just what currency exchange services can get for you!

You shouldn't have a problem finding foreign currency exchange services to cover your financial needs while you're home or away. The Western Union or your bank can help you sort out foreign currency exchange services and it isn't difficult at all.

You will find that these services are a fast and easy way to ensure that you're covered or that you can pay someone quickly. Making transfers is easy and fast and it's relatively secure because all you need is the bank account number and sort code.

These services are becoming one of the most popular ways to get money if you're away on holiday and it's certainly worth while. Research is important though so make sure you understand the process before you do anything with bank details etc.

These services are a great way to pay someone some money and they are ideal for holidays and trips abroad. Currency exchange services are very popular these days and a lot of people use them to ensure they get their money quickly. - 23196

About the Author:

Author Abby H Naylor explains finding currency exchange services for your time abroad. www.purefx.co.uk has brilliant information on foreign exchange, you should surely be able to get deals that suits you.