Profitable CFD Trading Strategies
Understanding the relationship between two important ratios is the key to building a winning CFD trading strategy. The two key ratios are the risk reward ratio and the hit rate.
To calculate the hit rate divide the number of profitable trades by the total number of trades. The risk reward is the average win divided by the average loss. The risk reward is a measure of how your profits compare to your losses, while the hit rate measures how often your strategy is profitable.
Is Trading CFDs Like Winning Lotto?
Judging by the number of people that play lotto this is the way to generate wealth, but is it really?
Putting at risk just $10, you stand the chance to make $10 million when playing Lotto. This is excellent odds with your wins 1 million times the size of your losses giving a risk reward of $1 million to 1. This is an exceptional number and unlikely to be repeated anywhere in the investment world.
However if it was that easy we would have all won lotto. This is not the case and while the risk reward is exceptional, the hit rate is lousy. Assuming that the lotto draw requires 6 balls out of 40 to win then the chance of buying the winning ticket are 3,838,380:1.
What this means from 3,838,380 games of lotto you could be expected to win $10 million only once and lose the remaining 3,838,379 times. The cost of winning $10 million would be $38,383,790, so your net result is a loss of $28,383,790.
Winning Lotto is more about luck than probability as you may win before you buy you 3,838,380 ticket. But when it comes to building a profitable trading strategy it is not about luck it is about taking advantage of an opportunity that has a profitable edge.
Can Betting On Rugby Improve Your Trading?
The Crusaders have dominated the Super 14 rugby series in New Zealand in the last 10 years as they won 7 years out of the last ten.
For one of the games in 2008 a gambler placed a bet that the Crusaders would win. The odds were 1.08 which means the $100,000 bet that was placed would return just $8,000 profit if the gambler won. With a risk of $100,000 and an upside of just $8,000 the risk reward is very poor at 8:100.
Despite the lousy risk reward the probability of success is very high. If the probability was greater than 90% that the Crusaders would win then this could be the basis of a profitable strategy.
If the odds were 95% then the gambler would lose only once out of 20 games so he would make $8,000 times 19, $152,000, and lose $100,000 once. His net gain is $52,000. As an investment even though the risk reward is lousy, this could be a profitable strategy if the hit rate is high enough to justify the investment.
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. - 23217
To calculate the hit rate divide the number of profitable trades by the total number of trades. The risk reward is the average win divided by the average loss. The risk reward is a measure of how your profits compare to your losses, while the hit rate measures how often your strategy is profitable.
Is Trading CFDs Like Winning Lotto?
Judging by the number of people that play lotto this is the way to generate wealth, but is it really?
Putting at risk just $10, you stand the chance to make $10 million when playing Lotto. This is excellent odds with your wins 1 million times the size of your losses giving a risk reward of $1 million to 1. This is an exceptional number and unlikely to be repeated anywhere in the investment world.
However if it was that easy we would have all won lotto. This is not the case and while the risk reward is exceptional, the hit rate is lousy. Assuming that the lotto draw requires 6 balls out of 40 to win then the chance of buying the winning ticket are 3,838,380:1.
What this means from 3,838,380 games of lotto you could be expected to win $10 million only once and lose the remaining 3,838,379 times. The cost of winning $10 million would be $38,383,790, so your net result is a loss of $28,383,790.
Winning Lotto is more about luck than probability as you may win before you buy you 3,838,380 ticket. But when it comes to building a profitable trading strategy it is not about luck it is about taking advantage of an opportunity that has a profitable edge.
Can Betting On Rugby Improve Your Trading?
The Crusaders have dominated the Super 14 rugby series in New Zealand in the last 10 years as they won 7 years out of the last ten.
For one of the games in 2008 a gambler placed a bet that the Crusaders would win. The odds were 1.08 which means the $100,000 bet that was placed would return just $8,000 profit if the gambler won. With a risk of $100,000 and an upside of just $8,000 the risk reward is very poor at 8:100.
Despite the lousy risk reward the probability of success is very high. If the probability was greater than 90% that the Crusaders would win then this could be the basis of a profitable strategy.
If the odds were 95% then the gambler would lose only once out of 20 games so he would make $8,000 times 19, $152,000, and lose $100,000 once. His net gain is $52,000. As an investment even though the risk reward is lousy, this could be a profitable strategy if the hit rate is high enough to justify the investment.
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. - 23217
About the Author:
Jeff Cartridge is the author of Supercharge Your Trading with CFDs and created the website LearnCFDs.com Find the Best CFD Trading Books
posted by X - Men @ 2:52 AM
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