CFDs with High Risk:Reward Strategy

• Quick Overview: Focuses on high risk-reward trades off daily SR levels and 1-hour trend continuation or reversal trades.
• Risk Management: Trades maintain a low risk of 0.7% to 1.7% per trade to manage losing streaks effectively.
• Strategy Target: Seeks high risk-reward ratios of 1:3 or greater, allowing for profitability on a lower win rate.

Strategy Description

This strategy will trade 1-hour trend continuation trades and reversal trades off daily SR levels. Trades will try to enter at the end of pullbacks or before trend reversals. Most of the trades taken on this strategy will be reversal trades relative to the 15-minute chart. When following the trend, we’ll look for 1-hour plus trends and then attempt to enter into pullbacks on the 15-minute chart. Sometimes it will also attempt to trade reversals of the prevailing trend, looking for local patterns complementing bigger chart SR levels.

Bankroll Requirements

The stop losses on this will always be fairly small. 50 points would be considered a wide stop. However, with the aggressive RR style, it is expected there can be more losing streaks and as such, it is wise to keep risk per trade low. $5,000 is enough to ensure it’s possible to cap all trades at 1% or less risk.

Percentage Risk Trade

Trade sizing will be dynamic depending on various factors. For example, trying to fade a strong move is more prone to losing trades than trying to get into the end of a correction in a strong trend. As such, trades expected to have higher loss rates will tend to be sized smaller. Trades will range from 0.7 – 1.7%, with most of them being around 1%.

Strategy Strengths

The strategy looks to trade most often at a RR of 1:3 or higher, meaning it can break even on low win rates and when there are good conditions, good profits can be compounded in the winning streaks. When successful, this strategy will be entering near the point a reversal is made and before a strong counter-move starts.

Strategy Weaknesses

The whole premise of the strategy is to jump in front of the train on a regular basis. It does this with a well-structured plan to be net profitable, but the fact remains that when you fade momentum – you risk a far lower win rate. This strategy is not comfortable. The winning trades don’t seem like a good idea at the time of entry, and a lot of them won’t win.

Benefits of Trading the Strategy

The strategy is very efficient for balance drawdown control. It expects and accepts a lot of losses but it caps the trade sizes low to account for this and the frequent small risks generally help to keep drawdowns reasonably low even in losing streaks. Losses are linear and profits can be exponential.

Disadvantages of Trading the Strategy

Requires quite a lot of active management trailing stops, placing orders, and re-entering stopped out trades. Is uncomfortable if you’re looking for a high win rate and most of the entries will be aggressively contrarian (Relative to recent action, or to the overall trend). If you do not have a “Law of large numbers” mindset this strategy can be very frustrating.