Profitable CFD Trading Strategies
Making of use of two critical measures of trading performance can dramatically improve your trading results. These two important measurements are the hit rate (winning %) and the risk reward.
Risk reward is calculated by dividing the average win by the average loss. The hit rate is the number of winning trades divided by the total trades. So the hit rate is how often you are right and the risk reward is how much you win when you are right relative to how much you lose when you are wrong.
How Does Lotto Compare To CFDs?
Judging by the number of people that play lotto this is the way to generate wealth, but is it really?
The attraction of lotto is the low outlay or risk. If you lose it only costs you $10 and if you win the returns are potentially enormous, maybe $10 million. The risk reward of Lotto is 1 million:1. This is an excellent risk reward ratio and one you are very unlikely to find anywhere else.
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 you bought 3,838,380 tickets on average one ticket would win and the rest (3,838,379) would lose. This means on average you would have to spend $38,383,790 to win $10 million. Overall playing Lotto would cost you $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.
Can Betting On Rugby Improve Your Trading?
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.
The odds are unknown, but assuming they were 95% then the gambler would win 19 out of 20 times. This means he would win $8,000 x 19 - $100,000 x 1. Overall he expects to win $52,000 from this strategy. So despite the risk reward being very poor it is possible that this is a winning strategy.
To trade CFDs successfully it is vitally important to have a strategy that overall you expect to win because the combination of risk reward and hit rate are in your favour. - 23196
Risk reward is calculated by dividing the average win by the average loss. The hit rate is the number of winning trades divided by the total trades. So the hit rate is how often you are right and the risk reward is how much you win when you are right relative to how much you lose when you are wrong.
How Does Lotto Compare To CFDs?
Judging by the number of people that play lotto this is the way to generate wealth, but is it really?
The attraction of lotto is the low outlay or risk. If you lose it only costs you $10 and if you win the returns are potentially enormous, maybe $10 million. The risk reward of Lotto is 1 million:1. This is an excellent risk reward ratio and one you are very unlikely to find anywhere else.
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 you bought 3,838,380 tickets on average one ticket would win and the rest (3,838,379) would lose. This means on average you would have to spend $38,383,790 to win $10 million. Overall playing Lotto would cost you $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.
Can Betting On Rugby Improve Your Trading?
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.
The odds are unknown, but assuming they were 95% then the gambler would win 19 out of 20 times. This means he would win $8,000 x 19 - $100,000 x 1. Overall he expects to win $52,000 from this strategy. So despite the risk reward being very poor it is possible that this is a winning strategy.
To trade CFDs successfully it is vitally important to have a strategy that overall you expect to win because the combination of risk reward and hit rate are in your favour. - 23196
About the Author:
Jeff Cartridge has been trading CFDs since they were first launched in Australia in 2002 and created the website LearnCFDs.com 441% in 6 weeks Trading CFDs
posted by X - Men @ 2:46 AM
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