pic by dizznbonn via Flickr Creative Commons
The trader’s Catch 22 is that high risk can lead to high returns. Oh, and high risk can also lead to devastating losses.
But the great trading dilemma is to figure out how much return you’ll receive for the risks you take. One way to estimate this risk-reward ratio is by using the Sharpe ratio.
The Sharpe ratio is named after Nobel-prize winning economist William Sharpe.
The ratio is calculated by subtracting the risk-free rate – such as that of the 10-year U.S. Treasury bond - from the rate of return for a portfolio and dividing the result by the standard deviation of the returns.
This may sound a little complicated, but compared to other ways of determining risk, the Sharpe Ratio is a snap.
Read more…
Automated Trading, Investing, Money, Online Investing AI
Automated Trading, invest, money management, risk, sharpe ratio, smart investing, strategy, trading, wealth
Picture courtesy banspy @ Flickr
Trading and gambling have been metaphorically tied together forever.
Traders talk about making a bet. They say they hit the jackpot, or they left their money on the table.
Trading and gambling, after all, do share commonalities–risk, returns, a certain element of randomness, and position sizing–to name a few.
But the comparisons, or lessons, don’t stop there.
According to a new study from Cornell University, investors and traders can all learn from a slightly contrarian gambling strategy. The study makes the case that online poker players who win more hands, end up losing more money.
Read more…
Accelerating Technology, Automated Trading, Business Strategy, Dreams Come True, Internet, Investing, Money, Online Investing AI, Success, US Economy
discipline, gambling, Investing, Money, money management, poker, risk, wealth
creativedc@Flickr
Looking over some of the new financial regulation proposals and listening to politicians–which I never advise doing–there’s a new vibe about money and greed in the Beltway.
Gone are the trust in markets and the notion that people can self-regulate. Now, our officials are saying our trust free enterprise has been misplaced and has been squandered into greedy financiers who pushed hard for quick bucks, at the risk of long-term growth. For proof, all you have to do is look at the economic collapse, they say.
The new theory is that people should limit their reward-seeking. Turn their attention to long-term growth. Anything else is just greed.
The question that remains is: will this new outlook be any more successful than its ideological predecessor?
Read more…
Automated Trading, Investing, Money, Online Investing AI, Success, US Economy
fat cats, politicians, regulation, rewards, risk, risk management, washington d.c., wealth
We’re pretty impressed with Automated Trading. As a concept, it makes sense, especially for the busy, self-directed investor.
- You have the return power of active trading.
- You don’t have the greed and fear of active traders (if programmed correctly).
- You don’t have the fees and other payment hijinx of mutual funds.
- And you don’t have all the time spent researching the market and waiting to make trades.
So, throw all your money into Automated Trading. Forget about the index funds and long-term investments.
I’m not sure that’s the best idea.
Read more…
Accelerating Technology, Automated Trading, Investing, Money, Online Investing AI
algorithmic trading, Automated Trading, index fund, Investing, ira, mutual fund, risk, the wealth singularity, trading, wealth
batmoo@Flickr
The most common misconception about wealthy entrepreneurs is that they’re risk takers.
As an example, people who believe this will tell you that Bill Gates dropped out of Harvard–talk about a sure-fire way to land a primo gig–to start Microsoft. Dropping a sure thing to pursue a whispy dream is the stuff of entrepreneurial legend.
But it’s not exactly how it happened. Gates took a leave of absence from the school, so he could re-enter if things at his fledgling company didn’t turn out as planned.
Gates’s story proves that successful entrepreneurs rarely take risks; rather, they take calculated risks. Here are six ways entrepreneurs approach and master risk-taking–and how investors can use them to manage their own risk.
Read more…
Accelerating Technology, Automated Trading, Business Strategy, Dreams Come True, Internet, Investing, Money, Online Investing AI, Success, US Economy
business, entrepreneur, Investing, risk, startup
Many people equate investing with a buy and hold strategy. They put money into their 401K or IRA account, and then buy mutual funds. They get their investing advice from the people who sell the mutual funds. They say, “No matter how far it goes down, don’t sell. Just wait until it comes back up.” And, they forget about their investment until their quarterly statement arrives.
On the other hand, the richest and most successful investors don’t buy mutual funds at all. One of their more popular investment choices are hedge funds. Hedge funds are similar to mutual funds in that the manager chooses which assets to buy and sell. Most people think that hedge funds are riskier because they are not limited in the investment strategies that they can use.
While nearly all mutual funds buy and and sell stocks, hedge funds can profit from a wide variety of strategies. For example, they can sell stocks short. They can participate in options, futures and currency markets. These markets offer higher leverage than stocks, so the government has labeled hedge funds as “risky”. Only accredited investors are allowed to invest in hedge funds.
Read more…
Investing, Money
buy-and-hold, currencies, hedge funds, leverage, mutual funds, options, performance, risk
laffy4K@Flickr
Well, maybe meaningless is too strong of a word. But, technically when you’re shopping for Automated Trading systems, the percent of winning trades may not accurately assess the success of the system.
Depending on how you define success, a team with the most hits is not the most successful. It’s the team with the most runs.
A guest poster at the INO Blog indicates that many traders focus on winning percentages when they investigate Automated Trading systems. The logic behind this seems solid: the more times you win, the more you win.
Trading, though, often has its own rules of logic.
How can you win 90 percent of the time and lose money?
Read more…
Accelerating Technology, Automated Trading, Business Strategy, Dreams Come True, Investing, Money, Online Investing AI, Success, US Economy
Automated Trading, returns, risk, risk control, wealth, wealth generation
The Little Book That Makes You Rich
is a pretty good book. It explains simply and clearly the basics of Navellier’s investment philosophy. One of the great things about his approach is that he uses a mathematical system. By his own admission, he’s a “numbers person.” And he explains why that has helped him to succeed.
Most people who trade make decisions based on their emotions. And 90% lose money. This is not a coincidence. One of the best ways to succeed as a trader is to remove our emotions. A precisely defined mathematical system is a good way to make that happen. Navellier uses such a system, and it has worked for him.
Read more…
Investing, Money, Success
buy-and-hold, Investing, Money, reward, risk, stocks, strategy
I have always been a Lenny Dykstra fan.
I was a Lenny Dykstra fan and I didn’t really like the Mets. (I liked him more when he played for the Phillies.)
He was just an old school player, right? Cut from the same pinstripe as a Babe Ruth or a Ty Cobb.
When I found out that Lenny was an investor and trader, I became even more of a fan and enjoyed some of the articles that he wrote for the Street.com. Lenny, it seems, wasn’t just a guy who could cipher batting averages or ERAs, he had a grasp of more esoteric investing, like deep-in-the-money option plays.
Needless to say, I found no joy when I heard that Lenny went bankrupt. What went wrong?
Read more…
Automated Trading, Investing, Money, Online Investing AI, Success
Automated Trading, baseball, mets, phillies, risk, risk-taking, sports
Flickr picture--Roadside Pictures
Money isn’t the root of all evil; risk is.
Risk is an attempt to scientifically categorize the simple truth that, since a better analogy escapes me, shit happens.
Risk makes fortunes and destroys fortunes. It’s ruined banks and created them. Risk has sent traders to the mansion… and the poor house.
But, just as it never says in the Bible that money is the root of all evil, but the lack of money is the root of all evil, so my pithy phrase that risk is the root of all evil isn’t quite on target.
It’s the lack of understanding of risk that is the root of all evil for investors and traders.
So, how can you make friends with risk? Here are six tips to help you make risk your friend:
Read more…
Automated Trading, Business Strategy, Investing, Online Investing AI
casino, gambling, investments, risk, risk averse, trader, trading, trading accounts
is one of my favorite financial books of all time. It's an allegory about a guy who has a terrible job, and how he overcomes challenges to achieve his dreams.
