Most new binary options traders fail within a year. This is unfortunate, because most of them were good traders, they just made a few rookie mistakes that could have been avoided easily. To help you make it through the starting period and become a successful binary options trader, we listed the three most common and most dangerous mistakes new traders make.
Make sure to avoid them, and you will be fine.
1) Not having a trading strategy
Most new traders start out without a clear cut trading strategy. They invest based on how they feel about an asset and advice they got from other traders or from TV. As a result, their trading is random. After some time, they will have won or lost some money, but they will not know why.
Inevitably, they will hit a streak of bad luck. Because they do not know what they are doing, they cannot improve on it. Step by step, they will lose all of their money and eventually fail as a trader.
Your only chance to survive as a trader of binary options is to use trading strategy.
This strategy needs to define:
- Which assets you trade
- With which type of binary option
- In which time frame, and
- Which instruments you use to generate trading signals
By using such a trading strategy you can come to a more systematic approach to trading, and eliminate guess work and emotions from your decision making process.
Try trading now or continue reading the article below the table…
2) Not using money management
Trading is a numbers game. You will win some trades, and you will lose some trades. As long as you end up with more money than you started, this is perfectly fine. Money management was created to guarantee exactly that.
Most new traders, however, begin without a clear cut money managements system. They invest as much money as they feel like per trade. Sometimes, if they feel especially good about a trade, they might invest 20 or 30 percent or even more. If they lose this trade, and they will eventually lose one of these trades, their budget is significantly shortened. Rebounding from such a hard blow takes a lot of time and effort. Out of desperation they try to regain their money by investing hastily and risky, which eventually causes them to lose everything.
You need to have a fixed percentage of your overall money you invest per trade. This kind of money management system will help you survive losing streaks and make constant profits. Without it, you will inevitably fail as a trader.
3) Not having a trading diary
After you have been trading for some time, you will have won or lost some money. Either way, you need to know why. In order to improve your trading, you need to have a very exact account of what actions caused you to lose money and which actions caused you to win money.
Therefore, you need a trading diary. For every trade you make, you can note the instruments you used, how you interpreted the market and what your prediction was based on this interpretation. After a while you can come back to your trading diary and search for common patterns. You will find that certain methods worked better for you than others, and you will be able to define which trading methods, types of assets, or types of binary options worked well for you and which didn’t.
The clear, black on white account of your thoughts while trading will show you connections you would inevitably have missed in the blur of your memories. Therefore, a trading diary is an invaluable ingredient to the success of each trader, and no new trader should approach the market without it.