What is Kelly Ratio?

By Ahmad Hassam

How to develop a trading system, evaluate it and then apply it with real money. There are many factors to consider in a mechanical trading system.

We need to not only know that the trading system is profitable but also whether it is profitable with limited equity swings. Does the trading system have excessive drawdown periods?

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

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?

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

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 used by many traders to determine how much money to place on the next trade.

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.

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. Suppose K is 25% then you can risk 25% of your account on each trade.

To be on the safe side you should half the ratio. Many traders argue that the Kelly Formula gives too high a figure. Suppose 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. It shows 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. - 23221

About the Author:

Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in day trading stocks and forex. Know The Candlestick Patterns. Learn Forex Trading.

Using a Forex Robot

By Frank Rivera

The forex market is renowned for being extremely volatile. The rapid movement of currency values can mean it's very difficult to predict at any time. A lot of people lose money quickly when they jump into the market and attempt to trade manually based on what they think they've learned by watching charts or graphs. More experienced traders understand that they need to use analytical software to help their trading strategies. They use programs called forex robots.

Expert advisors have grown in popularity in recent years and there has been a huge influx of them for sale in the market. Every forex related website you go to has a host of different ads for these robots and each has their own unique claim to fame. They claim that they can double your account in a certain period of time or something else along those lines.

While there are a lot of inneffective expert advisors on the market, there are a few good ones as well. Some of the really good ones, you'll never hear about on the open market, but there are a handful of good ones that you can buy. When you find one, you can actually hook it up on your account and let it run.

How do forex robots work exactly? Before you can put an automated software system to work for you, you'll need to open a trading account with a forex broker. The MetaTrader 4 seems to be a very popular trading platform with many different brokers. It's user-friendly and easy to figure out quickly. Once you've logged into your account, open a chart window on MetaTrader 4 and then drag your robot software onto the chart. Depending on the type of robot you bought, you may need to reset some of the parameters to make it work the way you want.

Once your robot is set on the chart, there's not a lot you need to do. The software will read the charts, which show the pricing history of any currency you want to trade and it will begin analyzing the values as they change to try and determine trends within the market.

It will also use that analytical information to generate a trade indicator to buy a particular currency. Because your robot is an automated system and it's running within your account, it can initiate the trade for you on its own. When the program recognizes that the currency value has increased to the point where you're making a profit, it will then close out that trade for you.

This method of trading is extremely easy to use. You really don't have to know a lot about the forex market in order to succeed with this strategy. It is truly a set and forget system. This makes it great for beginning traders who don't have a clue what they're doing.

On the whole, automated trading software can give you an excellent starting point in the market. Just be sure you research any software you want to buy thoroughly before you spend any money. - 23221

About the Author:

Ever seen an automatic forex trading system? They work great and can double your money fast. Check this automated forex strategy here right now!

What News Profiteer Is All About?

By Clark Tomlin

In the world of FOREX trading, Henry Liu has proved that it is merit, rather than associations with banks and other traders, that determines one's ultimate success, and he has proven his merit in the value that his unique News Profiteer system has brought to other traders.

According to him there is always a technical angle to present to a trader. Various lines of market trends and candlestick charts need to be evaluated. There are also Fibonacci retracements that should be considered. However, these technical evaluations do not prepare the trader for all market uncertainties. There is also a mental angle that needs to be considered. Traders can gain a toehold on money that baits them, which can result in greed and fear.

Even though traders may think about news trading, the usual trade critics generally do not mention it. Henry Liu believes this is a mistake that hurts the whole trading market. In his newsletter, Liu gives his unbiased opinion about fundamentally tradable news and their impact.

According to him, boardroom dividend declarations and important mergers are consistently not considered by traders. However, the market impact of such news is unexpectedly high. In Lius' news profiteer review, he gives a neutral review on tradable news, particularly those which will likely have a high impact on the market. He also adds details including the time of the news release, related figures and a course of action to take after the news is out; for example, whether it is time to sell or time to buy.

In his E-book, he is able to give the reader the information needed to remove much of the volatility found in trading today, enabling the reader to generate as many as 25-30 pips per trade, by following his News Profiteer system.

Henry Liu always generates excitement with the way he is able to trade in any market, from London to Nikkei, and in any market condition. Twenty five to Thirty pips per trade are not insignificant. Yet, his success is based on the principals of fundamental news analysis that intelligent traders are able to benefit from by reading his newsletter.

According to Liu, there are two types of traders. The first learns all the technical jargon and understands its execution. Those people grace forums and online trade rooms, but there are never enough shekels in their live accounts. The second understands the theories of rally and correction and support and resistance. If they also understand the effect of fundamental news on world Forex trade they will be the eventual winners in the market.

News Profiteer will give you access to that fundamental news and basic market principals, and will give you the kind of precise details you need to time your trades effectively. Believe in these principals, and your trading will be more successful than you can imagine! - 23221

About the Author:

If you'd like to know more about News Profiteer, then it's important to check out this site: Avi Frister's Forex Trading Machine.

Most Millionaires Share These Common Traits

By Dan Gazaway

Who wants to be the next millionaire? I think all of us want to make a lot of money for a variety of reasons. Most people are unsure how to go about making a fortune and feel they will never have the opportunity to make a lot of money. However, today there are many ways to make money, particularly on the internet. Success Leaves Clues! Lets take a look at some of the most common characteristics most millionaires have.

All millionaires, with the exception of lotto winners, have mentors. Whether a millionaire has made their fortune in Real Estate, Internet or some other source; millionaires pay big bucks to stay current with their knowledge. Wouldnt you rather pay someone who has 20 years of experience in their field $50,000 to teach you what they know in 20 days? It buys you so much time if you can utilize the knowledge they teach you.

Aside from their amazing work ethic, most of the wealthy work more than 40 hours a week; Millionaires know how to leverage their time and resources to work more efficiently. They hire others, saving them hours of time. They hire out their weaknesses and focus solely on their strengths. Their business is their passion in life and dont feel it a drain of energy to constantly talk about it.

Millionaires are great at leveraging other peoples time and money. They hire people who have talents they dont possess. Therefore, they hire out their weaknesses and focus on what they do best. Because they are so passionate about what they do, people (their clients) recognize that and they buy from them.

Believe it or not, most millionaires are very conservative people. Most of them will never buy a new car or new anything. They understand the value of the dollar and dont want to waste hard earned money on things that depreciate in value. They will however be aggressive when it comes to investing in them and their business. - 23221

About the Author:

Learn how to make make money on the internet with knowledge worth knowing. We share home based business ideas that are worth knowing.

Facts Regarding Cost Of Land In Costa Rica

By Randy Berg

Real estate buyers and investors will find Costa Rica a great city for investing in, as the cost of land in Costa Rica is very reasonable. This gives those who are not earning big salaries or are not in the high income group to find an opportunity to get a decent home for themselves. It also makes a great business deal for investors who want to buy and then sell the property to make a reasonably large profit. Of course the profit would depend on where they buy the property, as the more affluent areas will have a better profit while the middle class areas will have a lesser gain.

This city is the most wanted place for people who would like to invest in homes and properties, and to relocate to. The main reason, for this is the low cost of land in Costa Rica, and the possibility of the resale value going up. This ensures high profits for the buyers who can get the property at a cheap rate and sell it later for a good gain. Properties here have been known to get triple the price of what was paid for them, after a period of ten years or so.

There are many reasons why the cost of land in Costa Rica is more affordable than in other places. The cost of living is cheaper here than in other places and the taxes are cheaper here too. This makes life in this town much more comfortable.

Many do not think about the cost of land in Costa Rica and would pay anything to get a property here. This is because they appreciate the natural beauty of this place and only value the peace and quiet that they will find along the beaches and countryside. The cost is immaterial when there is so much more that this place offers.

Another major factor which makes this a place for people to relocate to is the fact that it is a secure and safe place where families can live without fear of crime. This and the cost of land in Costa Rica which is very affordable draw buyers to it.

For those who would like to get a property for a still better price, and pay less than the already discounted cost of land in Costa Rica, there are a few tips which will help. One way to get a property at a cheaper rate is to buy it before it gets too popular or commercialized. When the builders are beginning the development of a property they are eager to find buyers and sell it at a lesser rate than what it will be worth when it is complete.

On the other hand if you want to make sure that your property is one day going to get you a lot more than what you paid for it, look for places which have some major developments happening in the near future. Though the cost of land in Costa Rica may be cheap right now, the surroundings will increase the property value soon. - 23221

About the Author:

Let Randy Berg help you find stunning and wonderful properties at Costa Rica Real Estate. Interact with us through our forum.