Lotto, Is This The Best CFD Trading Strategy
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.
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.
Is Trading CFDs Like Winning Lotto?
Most people have bought lotto tickets at some point in their life, however is lotto the way to riches?
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.
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?
In the Super 14 rugby series in New Zealand the Crusaders has been a dominant team over the last ten years winning 7 of the 10 series.
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.
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.
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. - 23218
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.
Is Trading CFDs Like Winning Lotto?
Most people have bought lotto tickets at some point in their life, however is lotto the way to riches?
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.
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?
In the Super 14 rugby series in New Zealand the Crusaders has been a dominant team over the last ten years winning 7 of the 10 series.
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.
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.
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. - 23218
About the Author:
Jeff Cartridge is the author of Supercharge Your Trading with CFDs and created the website LearnCFDs.com What the Top 3% of Profitable CFD Traders Know
posted by X - Men @ 2:42 AM
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