```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
• Kelly % = (55 − 45)/(1,750/1,250)
• Kelly % = 10/1.4
• Kelly % = 7.14%
Perfect Profit
• 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: [email protected]
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