A day trader is a financial investor that only invests on very short time frames. At the end of the day, a day trader does not carry positions to the next day. Therefore, the longest time frame he invests in can be only hours, often even minutes.
As a binary options trader, you are day trader, too. Binary options feature very short expiration times of hours, minutes, or end of day. Whichever expiration time you prefer, all your investments will end by the end of the trading day or sooner.
Being a day trader poses some unique challenges and requires a unique mindset. Compared to long term investors, day traders have a very narrow focus, and they do not care about the company, the commodity, or the currencies they are trading. They solely focus on the market. This article will make these unique challenge to a daytrader’s mindset clear.
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Day traders do not care about the asset they are trading
As a day trader, the only reason you invest in an asset is that you think you can predict its future price movement based on logical, emotionless technical analysis. You do not invest based on hunches, you do not care about a company’s products, and you are not interest in fundamental data.
The only criteria for your investment decision are what the market has done and will do. You are trying to find out, whether the market will rise or fall and invest based on that. Many traders find it difficult to fully adapt such a, in their eyes, cold hearted approach to investing. They cannot separate the price of the asset from the underlying company, currency, or commodity.
Also, many day traders keep investing in the same group of assets they feel comfortable with. While there is nothing inherently wrong with this approach, over time, many day traders get attached to the asset they are trading. That causes them to make feelings-based decision, too. If they had some success with investing long in asset in the past, for example, they tend to look for signs to justify another long investment today. This attachment causes them to lose focus and make bad trading decisions.
Day traders have a narrow focus
For day traders, it is only important what an asset will do in the near future. Sometimes, this can lead you to counter-intuitive trading decisions. If an asset is in a solid, fast-paced uptrend, for example, a trader’s natural instinct tells him to invest long.
Since binary options have very short expiration times, however, even an asset whose overall trend is skyrocketing will go through market phases in which you should invest short. A small correction might be enough to make investing short a necessity if you want to win your binary option.
Of course, this narrow focus often causes binary options traders to go against conventional wisdom and the majority of other traders. While this is a necessity caused by the trading style, it makes some traders feel uncomfortable. Their insecurity leads to mistakes, and their mistakes cost them money.
To avoid losing money, learn to ignore everything you hear about the market and the asset you are currently looking at. If technical analysis tells you to invest short, you have to invest short, even if the whole world disagrees.
Day traders need to work hard every day
As a day trader, you have to know exactly what is going on in the market. That means, you have to prepare for each trading day, you have to monitor the market closely during the trading day, and you have to take some time to see what worked and what did not once the trading day is over.
In other words: Day trading is a full time job. Since you are operating on very short time scales, the entire market environment will change within hours. While long term investors can find trades that exist for months and years, you have to find a new trend every time you are investing. Of course, the higher earnings will more than justify the additional effort day trading requires, but do not expect day trading to make you rich with little work.
Day traders are constantly wrong
Technical analysis is no exact science. Therefore, day traders constantly work with probabilities. This means, for a certain percentage of their trades, they are wrong. The market never fails to provide surprises and random events that render day trader’s predictions invalid and cause them to lose their trade. Especially binary options with a high payout, such as touch options, sometimes require strategies with a low winning percentage.
Making wrong predictions for a medium to high percentage of all of all trades poses a challenge to the mental strength of a trader. Not all people are fit for that, and you should make sure you have a thick skin once you decide to become a day trader.