Trading Binary Options
Binary options trading is much different than forex trading for a number of reasons. Aside predicting the market trend binary options traders must also predict by when the price will trade higher or lower. The expiration for binary options can be as low as 30 seconds on some brokers and as high as several months if not longer.
We have provided a guide on what tweaks experienced forex traders must make to trade binary options but we have never discussed traders that are only trading binary options. These tips are based on our experience in the field, which we hope will assist you in trading the market.
Beware of the Classic Binary Trap
The majority of binary options traders at the time of this writing based our sources are traders that opt for short-term trading, a mutation of traditional scalping if you would like. This includes 30 seconds, 60 seconds, 2 minutes, 5 minutes, 15 minutes and 30 minutes.
The risk you may be facing is allowing your imagination to run amok and believe the invested capital can be turned into mountains of gold within 24 hours.
A wonderful yet destructive thought. When you begin to take losses from the market as one can never profit on all his or her binary options despite the used strategy you are lured into taking excessive risks in order to reclaim the lost capital. This is done by increasing the invested capital into the trade, thus exposing a larger portion of your investment to the market.
If you took a greater a risk and predicted the trend successfully and earned the payout you are doomed. The next time this will happen, on most occasions you are unlikely to succeed, which will lure you to take greater risks. The outcome is incurring hefty losses that are beyond the ability to recover, ‘total loss’ as referred too by insurance companies describes best this horrific scenario.
Our first tip is therefore to cut the trade size by 50% (if possible) until your mind cools off. If you are unable to cut the trade size as your are trading with the minimum trade sizes opt for a long expiration such as 2 hours until you calm down from the loss. Of course, do not randomly enter the market but ensure you trading strategy is inline with the selected expiration.
Trading One Minute Charts
Many binary options trade using 1 minute charts, We strongly oppose 1 minute charts for a very simple reason, false signals. The lower the time frame the more false signals you will receive from your indicators or price action strategies, especially in the Forex market. Despite what traders promise to work we strongly suggest to refrain from using one minute charts for trading forex binary options. The minimum time frame should be 5 minutes.
If nevertheless you wish to try trading with 1 minute charts we recommend doing so with small trade sizes and draw your conclusions at the end of the month/quarter.
Binary Options Risk Management
You must have clear rules on how much of your invested capital you will be exposing per trade. If you do not have predetermined guidelines you are very likely to ‘rage’ after losses and begin taking large trades due to irrational thinking.
You must determine how much of your invested capital you are exposing per trade. how to trade after losses, how to trade after profits and when not to trade at all. Many binary options traders trust their natural instinct instead of setting rules to themselves, which may be their greatest downfall.
Ensure you have your guidelines in front of you all the time when you are trading binary options until it becomes part of your routine.
Binary Options and the Holy Grail
Many new binary options traders seek a strategy that has a 90% success rate or 100%. Such traders are being taken advantage of by seasoned traders that are perfectly aware such success rates do not exist in the market. Understand now there are no shortcuts in the market and strategies with 90% or 100% success rate do not exist.
To discover your success rate you must trade on your own, prepare to lose money, learn and perfect your strategy. Very few trades succeed the first time they trade. Risk management is therefore extremely important to you if you never traded binary options before.
Not Everyone Can Trade
Trading, not just binary options is not suitable for all traders. It demands character and self discipline that not all possess. Studying the market is unfortunately insufficient and does not mean you will be a successful trader. If you have traded before and was unable to succeed for various reasons, look deep into yourself and see what can you change about your behavior and mental state when you are trading.
We prefer the technical approach into trading binary options as fundamental analysis must be precise and extremely accurate as the entry price (target price) is critical to the success of the trade. By technical approach we are referring to technical analysis.
We hope our binary options trading tips will help in your in trading the market. You are welcome to review our market education section for more educational articles.