Trading Numbers
Rajeev Shukla
Kelly’s formula
• Kelly % = (Win% − Loss %)/(Average
Profit/Average Loss)
• For example, assume a strategy that has a winning percentage
of 55 percent, an average win of 1,750, and average loss of
1,250. The Kelly percent will tell us what percentage of our
trading capital to risk is on the next trade.
• Kelly % = (55 − 45)/(1,750/1,250)
• Kelly % = 10/1.4
• Kelly % = 7.14%
Perfect Profit
-- Robert Padro
• Perfect Profit is the sum total of all of the
potential profit that could be realized by
buying every bottom and selling every top.
• More precisely, it is the sum of the absolute
value of every price swing formed between a
price peak and a subsequent price valley.
• An unachievable ideal measure.
Model Efficiency
• Model Efficiency = Net Profit/Perfect
Profit
• For example, if net profit = 25,000 and a Perfect
Profit = 300,000 for the historical period traded,
• Model Efficiency = (25,000/300,000) × 100
• Model Efficiency = 8.33 percent
• Trading strategies with MEs > 5 percent -- very
good.
THANK YOU
• Visit: www.lifefunetc.com
• Mail: dr_rajeevshukla@rediffmail.com