In general, there is a strong correlation between the level of risk and the return on investment. More profitable investments generally imply a higher level of risk (but, importantly, not necessarily vice versa). This is because, in order for someone to engage in a more risky investment, there has to be a higher return on the investment to make the risk worthwhile.

If you have a CFD account and never trade, well, that’s very safe. But not profitable. Each time you trade, you are taking a risk, but you could make a profit. If you trade a lot, you will be taking on more risk, but, presumably with the objective of making more profit.

This applies to asset classes. Buying gold is relatively safe. Buying stocks is significantly riskier. But stocks pay dividends, which means you could make more money. Leverage, where you borrow money to make larger investments, increases how much money you can make, but also increases how much you can lose.

The appeal of CFDs is that you don’t trade the underlying asset, but a contract for the difference between the price when you buy and the price when you sell. They allow for significantly more leverage, so you have the chance of making more money, while accepting an increased risk than if you just bought the asset outright.

Because of this, risk management is a fundamental (if often less appealing and therefore more forgotten) aspect of CFD trading. Because a lot of people can be seduced by the idea of making a lot of money with CFDs, many take too many risks when trading – sort of like people who buy a sports car and drive too aggressively. It isn’t that the sports car is inherently less safe, but that the people who are motivated to buy one are more interested in risky driving. Because of this, some places like the US simply ban CFDs.

Understanding that risk is intimately related to profitability, you can manage your risk levels to suit your personal preferences and abilities. You can adjust how often you trade, how much money you put in, how much leverage you have, how much thought you put into a trade. You can study up on how to manage risk, and administer your money. All of these are important elements of CFD trading that make it safer.

Many traders have argued that CFD trading is actually more about risk management than looking to make the most profitable trades. Trading for them is a numbers game, where you use probability and statistics to offset your exposure and reduce your risk without compromising your profitability. The argument is that CFD trading is all about safety, and finding the safest way to make a profit.

In the chart above you can see an example of a bearish engulfing candle, combined with bearish RSI divergence at a double top. So, as price is testing the double top, the trader will note that the RSI indicator is showing clear bearish divergence (weaker indicator signal than the last time price was at the level). This suggests that the market is vulnerable to a reversal lower.

Price tests the level and then we see a strong reversal with price printing a bearish engulfing candle. This tells us that there has been an acute shift in supply and demand at the level. This alerts us to the potential for a deeper move lower. The presence of the bearish engulfing candle at the double top resistance level with bearish RSI divergence is a strong set of criteria for placing a short trade. This would have nicely captured the reversal lower.

In the chart above you can see an example of an inside bar breakout with bullish MACD signal. The trader would have noted that the MACD indicator turned bullish at the site of the vertical red line. With a bullish signal in play, the trader would be looking for long opportunities. In the highlighted section you can see an inside bar breakout setup noted. So, at the point that the inside bars were forming, the trader would note the contraction in momentum and the likelihood that, in line with the bullish MACD signal, the market would eventually break higher, allowing the trader to enter a long trade as price moved above the mother candle. This is a great way to trade with the trend and allows the trader to quickly capture a fresh burst of momentum as the trend resumes.

Producer prices data for the Eurozone saw a modest increase for October. Inflation at the factory gate rose 0.1% on the month. On a yearly basis, Eurozone PPI is down 1.9%. The gains were driven in part by the energy sector which rose 0.7%.

The currency pair, after a brief consolidation near the resistance area, is looking to breakout higher. Although price action needs to be more convincing at this point, the bias is shifting to the upside. If the resistance level of 1.1075–1.1062 is tested for support, then the common currency will be aiming for 1.1131.

The construction PMI data released by Markit on Tuesday showed a contraction. But the pace of contraction was relatively slower. The construction PMI rose to 45.3 in November from 44.2 in October. This was the slowest decline since July this year. The construction PMI data comes on the heels of weak reading from the manufacturing sector.

The construction PMI data released by Markit on Tuesday showed a contraction. But the pace of contraction was relatively slower. The construction PMI rose to 45.3 in November from 44.2 in October. This was the slowest decline since July this year. The construction PMI data comes on the heels of weak reading from the manufacturing sector.

EURUSD has been higher over the European session so far on Thursday as weakness in the USD allows for recovery in the single currency. In light of recent data weakness and comments from ECB’s Lagarde (who said the ECB remains committed to achieving its 2% inflation target), the outlook remains bearish for EURUSD. Currently trading 1.1091 last, and approaching the bearish trend line from mid-2018 highs.

GBPUSD continues to forge higher ground today after breaking out above the 1.3033 resistance. The latest UK elections polls show that the Conservative party remains in the lead with around a 10% lead on Labour. For now, price action seems to reflect the view that elections outcome will either result in Brexit being delayed further or Johnson’s deal being pushed through, keeping GBP supported for now.

Risk assets have continued to recover into the back-end of the week following initial weakness in response to concerns over US/China trade talks. The SPX500 has traded back up to 3117.53 today, recovering firmly off the 3069.48 lows. The recovery has been helped by a Bloomberg report suggesting that a US/China trade deal is still close, despite recent tensions over Hong Kong. This report comes after Trump spooked markets by suggesting that a deal might not come until after the US elections next year.

The Institute of Supply Management’s non-manufacturing activity slowed in November. The latest figures show that services activity slowed to 53.9 on the index. This was down after the index rose slightly to 54.7 in the month before. The slowdown in the services sector comes amid a contraction in the manufacturing sector.

The currency pair briefly slipped back to the previously established resistance level of 1.1062 – 1.1075. If this support level holds, then the currency pair could be on track for further gains. The next upside target is at 1.1131 level. To the downside, only a clear break below the current levels will confirm a shift in the bias.

The latest weekly inventory report by the Energy Information Administration (EIA) showed a drawdown in oil inventories. For the week ending November 29, crude oil prices fell 1.6 million barrels. This comes after a consistent weekly build up in oil inventories. The upcoming OPEC meeting is also weighing on the oil trades.

Crude oil prices broke past the resistance level of 58.00, rising over 3% on the day. The breakout past the resistance area confirms potential further upside. There is scope for WTI Crude oil to retrace back to the 58 region to establish support. As long as this level holds, price action could see further gains with 60.00 as the next main level of interest.

The pound sterling continued to advance gains, rising to a seven month high on Wednesday. The currency picked up momentum after latest polls put the Conservative party in the lead. Besides leading the polls, the rally comes as investors hope that PM Johnson’s party will win a majority. This is expected to pave way for a Brexit deal which is due for review by January 31, 2020.