Online Stock Trading Tips

One of the most effective ways to invest money in stocks is to use Kelly Criterion. The objective of Kelly criterion is to let you know how much you should invest in each equities of your highly diversified stocks portfolio to maximize the capital growth. In short, %Kelly is the percentage in your total equity of which you will need to invest in each of those securities. For example if Kelly percentage is 5%, it says that you need to invest 5% capital to each of your equities.

If 100% represents the total equity, then with 5% it is possible to invest in around (100/5) = 20 highly diversified stocks. This % will guarantee the maximum growth of investment. Interesting isn’t it?

Let’s take a look at the Kelly criterion formula:

Kelly percentage = Winning Probability – [(1 – Winning Probability) / WL]

Where:

Winning Probability = probability of winning trades. If you already made a total of 200 trades in the past and around 105 are winning trades. The Winning probability is: (more…)

You are planning to be rich right? Of course there is no quick rule but to plan. You need to plan your way to riches. The best rule of thumb is how you are going to double your money in a certain time frame given a particular amount of compounding interest.

What if you have 10,000 dollar savings and you need to double it 3 years, how much compounding interest would it need? This is where the rule of 72 is very helpful. It is a financial formula based on the constant 72 to determine how much compounding interest is needed to double your money.

The formula is:

% compounding interest = 72/ (Number of years you need to double your money)

Based on the above formula, all you need is to divide 72 by the number of years you need to double it. For example, if you need to double your money in 4 years then:

% interest (compounding required) = 72 / 4 = 18%

So you need your capital or savings to be compounded 18% annually in order for it to double in 4 years time. This particular formula is very important in managing your money particularly in the field of investing. (more…)