Stocks & Commodities V. 28:7 (24-26): The Language of Money by Walter T. Downs, PhD

Stocks & Commodities V. 28:7 (24-26): The Language of Money by Walter T. Downs, PhD
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The Language of Money by Walter T. Downs, PhD

Here is a formula for calculating risk of ruin that can be used to make intriguing mathematical projections of the forex gambit.

IN my previous article, I presented the forex gambit. I made some suggestions for systems and analysis and presented some results that were intriguing. But is that all that can be said about the subject? Hardly! In this article, I will discuss risk, the essential language of money. Here’s a possible formula for calculating risk of ruin, and then I’m going to use that formula to make some mathematical projections for the forex gambit.

I will start by defining risk of ruin (Ror). In its simplest form, Ror is the probability of an account going to zero given various variables.

In his 1992 Stocks & Commodities article “Appreciating The Risk Of Ruin,” Nauzer J. Balsara suggested that the variables for calculating Ror should be: p = Probability of success k = Percentage of capital exposed to trading W = Payoff ratio

Nauzer then ran several simul- ations and produced some tables listing the various probabilities of Ror, given the input variables mentioned.

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