Becoming a binary options trader means tackling a wide subject. Especially for new traders without any prior experience in financial markets it is sometimes hard to know where to begin. To help you get started we compiled 8 binary options guidelines = the 8 most important rules you have to know as a binary options trader. From this article, you can find links to additional articles with more information on each subject.
1. 8 Binary Options Guidelines – Don’t invest randomly
Stick to a clear cut trading strategy
Random investing is the number one reason why traders fail. Becoming a successful trader means being able to generate profits over a long period of time. Without a clear cut trading strategy you cannot guarantee constant earnings. Instead, your account balance will sometime go up and sometimes go down, but you will never know why, and you will never be able to improve.
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2. Money management trumps everything
A good money management strategy combined with a good trading strategy guarantees reliable returns and long lasting success. Always stick with your money management strategy. Even if you are completely certain that you have found an opportunity for a winning trade, if your money management strategy does not allow that trade, you cannot make it.
3. Work from the long term to the short term
Even though binary options are short term oriented investments, you should start your analysis with long term charts. A trend or resistance line in a daily chart will have significant impact on intraday trading and can either provide you with a good trading opportunity, or surprise you with a lost trade in case you ignore it.
4. Ignore any trading advice given by media, friends, or conventional wisdom
Media analysts often have their own agenda. Therefore, their advice benefits themselves more than you. While friends often mean well, they usually do not know what they are talking about and only repeat what they have heard elsewhere.
One of the biggest challenges for a binary option trader is to develop the thick skin necessary to follow his own opinion. After all, you are the only person that knows your strategy. Also, if you are losing trades that are not a result of your own mistakes you cannot learn from them and can never improve your trading.
5. Ignore the majority
Most likely, if you read the market well, many people will disagree with your predictions. Learn to be comfortable with that. To be a good trader, you have to value your own judgment over everybody else’s opinion.
6. Keep learning
As with any skill, technical analysis improves with experiences and study. Always keep learning, keep reading blogs and books, and keep an open mind for all new trading developments. Thinking you know everything is the first step to losing money, and the second you stop learning you start getting worse.
7. Keep a trading diary
The easiest and best way to learn is from our own mistakes. Since you will inevitably lose trades with binary options, there are many opportunities to learn from your mistakes.
After every trade, make sure to note why you invested in this binary option, what you saw in the market, and if other factors were influencing your decision. If at all possible, take a screenshot of the price chart. After a while, you can come back to your trading diary and figure out which factors help you make money, and which lose you money. This gives you the opportunity to eliminate your weaknesses and strengthen your strengths. This will make you a far more successful trader.
8. Keep it simple
Complexity does not necessarily improve your trading. While combining a few selected instruments for your trading strategy makes sense, you should still be able to generate clear signals and make easy decisions. Difficult, complicated decisions lead to mistakes and lost trades.