Binary Options Trading – How to Avoid Common Pitfalls
BY: BORIS DZHINGAROV ON TUESDAY, OCTOBER 04, 2016
Binary options trading has its devotees. It also has its critics. In fairness to both, binary options trading is just like any other form of trading – there's the chance of making money, but that chance does not come without risk.
Binary options trading is attractive to those who have never attempted to trade, and to those who do not have thousands to invest. With binary options, a trade is simply a bet. You are betting that a certain commodity, currency or asset will rise (or fall) in price over a set period of time. If you are correct, you double your investment less your brokers fee. If you are wrong, you lose your investment completely. It's this simplicity that makes binary options trading so enticing.
It is possible to make money trading binary options (no one would do it otherwise), but there are ways in which any trader can increase their chances of success. If you begin your binary options trading career with no strategy in place, then you are not going to see your binary options account ballooning, unless it's into the red.
Successful binary options traders do not rely upon blind luck – if they did, then everyone would be doing it, and all the many brokers available across the internet would swiftly shut up shop.
So, traders need strategies that work. This involves a lot of work, a lot of effort, and a lot of trial-and-error. The key though to developing a successful strategy is to know how to avoid the common pitfalls of binary options trading.
How traders develop strategies for successful binary options trading
Some traders formulate their own binary options trading strategies. Others modify strategies that already exist. The vast majority though use a plan that has been used – successfully – by someone else.
The main issue with following a successful binary options marketing strategy is that its very hard to find a legitimate one. A successful marketing strategy is one that can be:
- proven accurate
- entrusted to deliver measurable results
Unfortunately, there are a huge number of 'fake' marketing strategies available on the internet. Their claims of success are usually justified with lists of hundreds of trades, the majority of which will be successful. The issue with that, as you might imagine, is that it's nigh on impossible to verify such trades. No one really has the time to find out the values of two currencies at a specific time, maybe many months ago. Claims of continual success are highly subjective at best and even then, past performance is still no guarantee of future success.
This means that most 'verified' strategies have not been verified at all, and that it is impossible for them to be so. Even the 'best' strategies are inconsistent. Their success is dependent upon the trader who implements them, and what they are hoping to achieve.
The other main issue with such schemes are that they are usually tuned into a single type of asset – typically highly-volatile Forex markets. Because of this, such strategies are little better than trading blind.
The key to successful trading – how, which, when … and how much
Most strategies fail because traders apply them to the incorrect type of asset. A strategy may be better suited to commodities than stocks, for example, yet the trader applying it could be distrustful of commodities, or feel the gains that they seek are not going to be provided by such an investment. A successful strategy using binary options could also be successful – with a few minor tweaks – on the Forex market. It could also prove to be disastrous.
Success in binary trading is just like success in any form of trading – it's a question of understanding HOW to trade, WHICH options to trade in and WHEN to trade.
That means that any strategy will work better in certain circumstances, while others will not work at all. The key to successful binary option trading is making the right trades at the right time. Most 'strategies' are not capable of doing this precisely enough.
There is one additional factor where strategies fail, and that's money management. To add to the list of how, which, and when – we now put 'how much'. Knowing how much to risk is another essential part of any form of trading. It all depends on how much you want to risk, the magnitude of the risk, and the potential rewards. Balancing these three factors is something a simple strategy does not have the capacity to deal with. Even a successful strategy has the potential to lose you all your money if you do not invest an appropriate amount. On the other side of the coin, you could miss out on handsome levels of profit if your strategy is working, and you are not investing enough.
Strategies do not care how much money you lose and how much money you gain
A strategy is an emotionless concept – it does not care how much money you make, and how much money you lose. Real people in the real world tend to care a little more about real amounts of money!
The best strategy when it comes to binary options trading relies upon adaptability. It is – however – possible to trade binary options while sticking to a rigid plan. Fundamental technical analysis will always remain the best of way of predicting markets. You could devise and then test your own strategy on a demo account. This will likely be complicated and time-consuming, but a strategy that's going to consistently earn you money is worth the work.
You need to know that strategies for swing trading cannot be applied to binary options with any hope of consistent success. You cannot sell options when the price is right as you are tied in to fixed, pre-agreed time limit. The 'early close' option that some brokers offer is not the same thing. Strategies for day trading are a different matter, and have more chance of consistent success.
In conclusion, strategies for binary options trading are only worth considering if you can undertake the verification process yourself. Do not rely upon details of past performance, as more often than not they are fabricated. Find a strategy, and a demo account, and let it run for some time. That way you'll receive a realistic understanding of its potential future performance.
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