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Playing a Game You Can Win
Imagine a simple coin-tossing game where you win whatever you stake if heads comes up, lose what you stake if tails comes up, and you are charged 1% of your stake each turn to play. Can you win money at this game? If you are familiar with the concept of expectancy, then you will probably answer ?No? since over many turns the amount won will be equal to the amount lost (assuming the coin is a fair one) and after factoring in the 1% cost of playing you will lose money overall.
In fact, there is a way to win this game, and that is to understand that the longer you play, the more you will lose, so the optimum strategy is to bet everything you have on just one toss of the coin; just like Ashley Revell did when he sold everything he owned, took the $135,300 to Las Vegas, and bet it all on ?Red? on one spin of the roulette wheel. Mr. Revell was fortunate and he won, but I am not recommending that you bet everything you have on one trade!
Obviously risking everything on one trade is not a useful strategy since we want a game we can play for long periods of time to generate a consistent income. So how can we change the game so that we can win? There are three aspects to the game which can be adjusted to increase our chances of winning consistently:
? We can tip the chance of a winner in our favor from 50/50
? We can increase the size of the payout from 1:1
? We can reduce the cost of playing the game
Tipping the chances of a winner is not possible in a fair coin toss game, but it is possible in trading. There are two ways to approach this: identify conditions that are more favorable to your winners and include them in your system definition, or identify circumstances where a loser is more likely, and skip those trades. For example, if you notice that most of your winners are entered on days where the overall market has moved in the same direction as your trade, then only enter trades when the overall market is moving in the correct direction. This means that your trade is in the same direction of the overall market, rather than against it.
Another example might be that trades that are entered just before major news announcements, like earnings calls, often get stopped out as losers due to increased volatility, so you should skip those trades.
There may be many patterns of winners and losers that you can identify for your own systems and careful study of past trades is definitely worthwhile. Note that we do not want to increase our win percentage too significantly (i.e. to greater than 60%) since this would indicate that we have ?curve-fitted? our system to historical results that are unlikely to continue into the future.
It is also important to note that for some types of trading (i.e. long-term trend following strategies) it may not be possible to have a win percentage that is greater than 50% (and it may be much lower) and that is where the second aspect of improving your system comes into play: the average size of winners versus losers.
Increasing the size of the payout so that the winners win more on average than the losers lose depends on the way you handle your stops. Having large winners in relation to losers can make up for a low win percentage, and mean that you will still make money playing the game. One method is to have a trailing stop that moves up as a trade becomes a winner. If you have fixed stops for losing trades that limit losses, but trailing stops for winning ones that allow winners to grow, then you are increasing your chances of your average winner being larger than your average loser. Generally it is better to be strict on losers by having tighter stops that keep losses to a minimum and generous with winners by having stops that allow profits to grow. In any case you want to make losers small and winners large, so never add to a losing trade ? that would be doing the opposite of what you want to achieve.
Lastly, reducing the costs of trading is probably the simplest change you can make, and can mean the difference between winning and losing overall ? especially for systems that have lower expectancy. There are many online brokers now that charge 1c per share for equity trades (and comparably low fees for other instrument types) and there is no reason why you should be paying more than this if you are trading electronically.
Every trader should do whatever they can to maximize the expectancy of their trading system or method by considering each of the 3 aspects just described. If we do some, or all, of these things then the amount we win now becomes afactor of how much we stake, and how often we play because we have created a true ?edge? where we know that the system we are trading should make money (if traded accurately). Calculating the expectancy of your trading system or methodtells you whether you are playing a game you can win, and is a very important piece of information that every trader should know before they risk real money.
If the game is rigged against you because your trading methods lose money regardless of how accurately you implement them, how can you ever be a successful trader?
Seven Ways to Consolidate Your Debt
When it comes to debt consolidation the first thing you want to do is consolidate your debt, but the first thing you should consider are all of your options. There are in fact more options and help out there than you imagined and just because you are in debt does not mean the situation is hopeless so get up and take charge of your credit rather than letting your creditors take charge of you.
Debt Consolidation Tip #1 Renegotiate With Your Primary Lender
For some reason when individuals are in debt all they want to do is avoid their lenders? phone calls rather than calling them and trying to work out new terms and asking for some help. There is help available and primary lenders will frequently offer assistance or even renegotiate terms in the event an individual is behind or struggling with payments. In this situation the last thing you want to do is avoid your lender?s phone calls because this will only make the situation worse and negatively impact your credit even more. What you want to do is immediately call your lender or make an appointment when you know your payment is going to be late or if you are struggling with payments. Be upfront and tell your lender the situation and that you want to renegotiate. This of course does not have a 100% success rate, but since your lender will lose money if you default they are more likely to renegotiate and grant you some of the relief you need to make your payments. However, if you never ask you will never know so go ahead and call your lender and see if you can work something out. Making this your first step may very likely negate any of the following steps if it is successful. If not, then you have six more options to consider.
Debt Consolidation Tip #2 Non-profit Credit Counseling Agency
There are a wide variety of credit counseling agencies out there including for profit and non-profit. If you are already in debt and having difficulties meeting your obligations then you should definitely seek out a not for profit credit counseling agency. These agencies have helped millions of individuals get their credit under control and will be able to help you as well. The way these agencies work is you provide them with all of your creditors? information and the agency calls and negotiates lower payments and/or interest rates. Then you pay a fixed amount to the agency each month and the agency divides up the payments among your creditors. This will keep you on time with all of your creditors and help you get your credit back on track.
Debt Consolidation Tip #3 Credit Card Transfers
This is an option for individuals who have good credit, but are starting to become overwhelmed with their monthly fees as well as interest rates. In this situation the individual should seek out other credit cards with offers of no interest or extremely low interest for a period of time. Then, once they receive the credit card they simply transfer the full amount of their other credit card?s balance. This way the individual will avoid paying the high interest, but for this to work the individual must be disciplined enough to pay off the full balance of the credit card in the introductory period of no or low interest. If not, then this option will not be of much help. However, if you are truly dedicated and committed it is an easy and fast way of handling your credit problems yourself and avoiding paying high interest rates.
Debt Consolidation Tip #4 Borrow from Retirement
When completely over your head in debt you always have the option of borrowing from your 401(k) plan. Most employers will allow employees to do this, however this should be one of your last options. There are some drawbacks to this option, however. If you cannot pay the loan back in full to your 401(k) or other retirement fund then you will be charged a variety of fees and taxes by the IRS, which is never good. Also, if you are fired or leave your job the loan will be due immediately. In addition to this, the interest is not going to be tax deductible during the time of the loan. If you have a 401(k) plan and your employer will allow you to take a loan from it, then you should do so as long as you know you will be able to pay it back as quickly as possible.
Debt Consolidation Tip #5 Life Insurance
You may borrow against your whole life insurance policy as well. This option allows you to take out a loan against the full value of your whole life insurance policy and while there is no time limit in which to pay the loan back you will certainly want to do so because if you do not pay it back the total value of the loan will be subtracted from your insurance benefits, which goes against the reason you have life insurance in the first place. This is a great option if you are disciplined enough to pay it back.
Debt Consolidation Tip #6 Home Equity Loans
If you own your home and have equity built up then you may qualify for a home equity loan. This will allow you to pay off all of your debts immediately, however you will still be required to make a monthly mortgage payment. The drawback to this option is if you cannot make your monthly payments you will risk losing your home. Only consider this option if you are sure you will be able to meet your monthly loan payment obligations.
Debt Consolidation Tip #7 Credit Unions
Credit unions are typical in the fact that they offer low interest loans. So, if you are a member of a credit union see what options you have for loans and their respective interest rates. This could be a great way to get a loan with low interest rates and fees that will allow you to pay off all of your existing debt and then pay a low monthly payment on the loan.
Why You Should Choose Debt Consolidation
If debt is currently an issue in your life, debt consolidation really can save you from the stress of bills, debt collectors, and the nagging thoughts of foreclosure or even bankruptcy. Debt consolidation can drastically change your life within weeks, months, or years depending on your current debt situation. Consolidating your debts will allow you to live with peace of mind that you are taking care of your financial obligations while continuing to live a happy life.
Debt consolidation is taking all of your bills and fitting them into one monthly payment. Fitting all your bills into one payment also means one interest rate, which will limit the amount you pay out every month, saving you a lot of money in the long run. Debt consolidation also makes paying off multiple debts easier because the monthly payments can be lowered when you take away insane interest rates. The average debtor pays more interest every month than they do on the actual principal balance of their debt! Eliminating the sky-high interest rates is a good start to getting your debts paid, without going completely broke.
Many people assume when they can?t pay the bills it?s time to just throw up their hands and consider drastic actions such as foreclosure, repossession and bankruptcy. While there are some extreme cases where bankruptcy would be the best option, foreclosure is almost always avoidable as is repossession. Banks, car dealerships, mortgage companies, and creditors don?t like to have to take back property or write off your debts, they would rather work with you on debt consolidation so that they can get back what they are owed and you can go on your way with your credit still in tact. Bankruptcy, repossession, and foreclosure are not easy outs when it comes to debts; in fact, they are choices that will continue to affect you for a long, long time. Consider debt consolidation before making any hasty decisions.
Debt consolidation on your own can be tricky, or downright impossible depending on your credit situation. Luckily, there are debt consolidation companies waiting to help people who are in over their head, just like you! Debt consolidation companies will take your credit report and any unreported debts that you can give them and work out a payment plan for you. These debt consolidation companies often contact each company and strike a deal to lower or get rid of the interest and even split the balance of the amount due. Obviously, lowering or getting rid of interest and part of each debt will limit what you spend each month, enabling you to actually pay the bill.
What?s the catch with this type of debt consolidation? Well, there really isn?t one. Yes, this is a business and the consolidator does make money because while he takes away the interest that each company is charging, he will charge you interest or a percentage of what you owe. Doesn?t seem fair? It is! It works out better for you, because even though you are still paying interest it?s just one interest payment for all the debts you currently hold. So, instead of paying twenty seven percent to ten companies you?ll pay twenty percent to one company. So, you go from having multiple payments and interest rates to just one payment for all the bills and one interest rate. It works! If you follow the plan, and make your monthly payments debt consolidation will soon have your credit report looking much better than it does right now.
You may think that you have so much debt you cannot possibly afford to repay even on a debt consolidation plan. You?d be surprised what these companies can get done on your behalf. And, if your debt is that outstanding you can work through the process slowly, a few debts at a time. There is nothing wrong with the process taking a while, as long as you keep up with the process and intend to actually pay off your debts. Getting your credit where it should be does take time, but it?s worth it. Your credit is your buying power, and each payment you make gets you closer to having more of it.
Worried that the companies you are dealing with won?t work with a debt consolidation company? You?d be surprised. Yes, the companies will loose a little bit of money compared to if you showed up with cash to repay the debt tomorrow, but in the long run it?s better for them to take a debt consolidation deal than not. Most companies figure they?d rather get a portion of your debt back and settle the deal than not get anything back at all. Getting seventy five percent of your debt back is more reasonable to them than to keep paying debt collectors to contact you and try to get the money back. All in all, any money is worth striking a deal over, and that is why a debt consolidation company can really get you where you need to be. They are professionals and they know how to get companies to agree to their terms.
Debt consolidation companies will usually work with you to get your debts paid off within a reasonable monthly payment. Each month you?ll make just one payment, reducing the time and stress of paying the bill, and each month you?ll be a step closer to financial freedom. Paying off your debts, through debt consolidation or otherwise will take a weight off your back that you may not even realize is there. No one wants to have unpaid debts, but sometimes life gets in the way and it happens. It happens to the best of us. But, don?t be too proud to consolidate those debts and get back on the right track. Open up your local phone book, or get online and find a debt consolidation service in your area. Contact a debt consolidator not with shame, but with pride, because you are stepping up to do the right thing.
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