Two Numbers That Guarantee Your CFD Trading Success
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.
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 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 it is not how much you win that is important when playing lotto it is how often do you win. An awesome risk reward is coupled with an awful hit rate. To win lotto if you require 6 from 40 balls then your probability of success is 1:3,838,380.
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.
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.
Rugby Versus CFDs
The Crusaders have consistently won the Super 14 rugby competition in NZ managing to secure 7 wins over the last ten years.
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.
But the probability of the Crusaders winning the game is very high. For this to be a profitable investment the odds would have to be over 90% that the Crusaders would win the game.
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.
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. - 23221
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.
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 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 it is not how much you win that is important when playing lotto it is how often do you win. An awesome risk reward is coupled with an awful hit rate. To win lotto if you require 6 from 40 balls then your probability of success is 1:3,838,380.
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.
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.
Rugby Versus CFDs
The Crusaders have consistently won the Super 14 rugby competition in NZ managing to secure 7 wins over the last ten years.
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.
But the probability of the Crusaders winning the game is very high. For this to be a profitable investment the odds would have to be over 90% that the Crusaders would win the game.
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.
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. - 23221
About the Author:
Jeff Cartridge is the author of Supercharge Your Trading with CFDs and created the website LearnCFDs.com Discover the Truth Behind CFD Brokers
posted by X - Men @ 3:03 AM
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