Profitable CFD Trading Strategies
The two critical numbers to know when you are trading is the risk reward ratio and the winning percentage or hit rate. Understanding these numbers will go a long way to improving your trading.
The risk reward can be calculated by averaging all the wins and dividing by an average of all the losses. The risk reward clearly displays how large your profits are when compared to your losses. The hit rate is simply how often you win and is a count of the winning trades divided by a count of all the trades.
Lotto versus CFDs
Judging by the number of people that play lotto this is the way to generate wealth, but is it really?
The risk is very low, lets say $10 for a ticket, while the reward is potentially huge, with first prize being many millions of dollars, say $10 million. The risk reward ratio of this investment is exceptional at 1 million to 1. There are very few investments that deliver this kind of risk reward.
But there is a problem with buying Lotto tickets as an investment strategy. It is not the risk reward, but the hit rate. If a winning Lotto ticket requires 6 correct balls out of 40 possibilities, then the odds of winning are 3,838,380 to 1.
If we were to play Lotto 3,838,380 times then we would expect to win once and lose 3,838,379 times. This means we would win $10 million once and lose $38,383,790, overall losing $28,383,790.
Overall, buying Lotto tickets is not a profitable strategy. Luck will favour some people in Lotto, but successful CFD trading is not about luck, it is about exploiting profitable opportunities.
Trading Lessons From A Rugby Game
The Crusaders have consistently won the Super 14 rugby competition in NZ managing to secure 7 wins over the last ten years.
A large bet of $100,000 was made that the Crusaders would win a particular game. The payoff if the Crusaders won was $108,000 so the gambler would receive a profit of just $8,000. With a downside of $100,000 the risk reward is very poor at 8:100 or 0.08.
However when you consider the odds of a Crusaders win they were very high. If the probability is high enough, more than 90%, then this could actually be a profitable strategy.
Calculating the probability of a team winning a game is not an easy task, but assuming the odds were 95%, then the gambler would win 19 times $8,000 and lose $100,000 just once. It could be that our gambler had a profitable strategy despite the lousy risk reward.
A successful CFD trader will find a CFD trading strategy that skews the odds in their favour and then implement that strategy to generate profits. - 23310
The risk reward can be calculated by averaging all the wins and dividing by an average of all the losses. The risk reward clearly displays how large your profits are when compared to your losses. The hit rate is simply how often you win and is a count of the winning trades divided by a count of all the trades.
Lotto versus CFDs
Judging by the number of people that play lotto this is the way to generate wealth, but is it really?
The risk is very low, lets say $10 for a ticket, while the reward is potentially huge, with first prize being many millions of dollars, say $10 million. The risk reward ratio of this investment is exceptional at 1 million to 1. There are very few investments that deliver this kind of risk reward.
But there is a problem with buying Lotto tickets as an investment strategy. It is not the risk reward, but the hit rate. If a winning Lotto ticket requires 6 correct balls out of 40 possibilities, then the odds of winning are 3,838,380 to 1.
If we were to play Lotto 3,838,380 times then we would expect to win once and lose 3,838,379 times. This means we would win $10 million once and lose $38,383,790, overall losing $28,383,790.
Overall, buying Lotto tickets is not a profitable strategy. Luck will favour some people in Lotto, but successful CFD trading is not about luck, it is about exploiting profitable opportunities.
Trading Lessons From A Rugby Game
The Crusaders have consistently won the Super 14 rugby competition in NZ managing to secure 7 wins over the last ten years.
A large bet of $100,000 was made that the Crusaders would win a particular game. The payoff if the Crusaders won was $108,000 so the gambler would receive a profit of just $8,000. With a downside of $100,000 the risk reward is very poor at 8:100 or 0.08.
However when you consider the odds of a Crusaders win they were very high. If the probability is high enough, more than 90%, then this could actually be a profitable strategy.
Calculating the probability of a team winning a game is not an easy task, but assuming the odds were 95%, then the gambler would win 19 times $8,000 and lose $100,000 just once. It could be that our gambler had a profitable strategy despite the lousy risk reward.
A successful CFD trader will find a CFD trading strategy that skews the odds in their favour and then implement that strategy to generate profits. - 23310
About the Author:
Jeff Cartridge is a private trader and author that lives in New Zealand and created the website LearnCFDs.com 441% in 6 weeks Trading CFDs
posted by Mr. Forex at
2:36 AM
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