forex
Profitability and Information
In the previous post (Optimal Market Exposure), we saw how trading requires information superior to the “outside world’s belief”, in order to be profitable. The trader may obtain this information by analyzing market fundamentals or technicals, or both. It is actually obvious that better information facilitates better trading, and more profits, but here we will […]
Optimal Market Exposure
Having established in the previous post (Logarithmic Utility of Wealth) that the utility of a rational, small, long-term trader’s account is logarithmic in the account’s size, we are in a position to mathematically optimize how much risk (exposure) the trader should take on a given opportunity. We do this simply by maximizing expected utility with […]
Logarithmic Wealth Utility
The previous post (Utility Function of Wealth) discussed and described the typical general shape of the utility function of wealth, and touched on some applications. Here, we will consider a special case, with an exact curve. Consider a rational trader – a trader that is emotionally detached from his account, and whose objective is to […]