How will I become a Better Trader?
This is not an easy question to answer for multiple reasons. For starters, nobody is consistently a successful trader. Good traders go through periods of consistent winning trades, followed by troughs. This is part of the market cycle. If one were to consider a timeframe of one month, you would invariably see that there is an even split between those who win and those who lose when they are trading. But this doesn’t tell the whole story at all – in fact it is far from the truth. The percentage of trades that you win has nothing to do with your profitability as a trader. Recall that it is the quality of your trades and not the quantity of your trades that matters. Even if your win/loss ratio is 50-50, this does not mean that you break even every month.
The vast majority of binary options traders lose money on an all too regular basis. Consider the percentages for just a moment: When you lose, you lose 100% of the money you have staked on any particular trade. However, when you win you only win between 65% and 90% back on your investment. The difference between these two potential outcomes explains why the vast majority of traders lose money when trading binary options. It should be borne in mind that a trade can go either way; there are only 2 potential outcomes – you’re in the money, or you’re out of the money.
There are other reasons why becoming a successful trader is difficult. And this relates more to the methodology used by individual traders. What’s good for one trader may not be good for you. And the same trading strategy may not be applicable across different asset categories. For example, the factors that affect commodities prices may not be the same factors that impact on indices. You will need to adapt your trading methods to the individual financial assets under consideration. In poker there is a term that is used to describe the emotional component that comes into play while betting. This is known as tilt.
You certainly do not want to become overly emotional when making important trading decisions. Emotion should be left out of it, and the best way to do this is to use strategy to anticipate the future price movements of the underlying financial assets. For all of the reasons listed above, the best advice for any trader is to gain a working understanding of market functionality, use a strategic approach to making trades and leave your emotions out of it. There is no one size fits all method to becoming the world’s most successful trader.
The more you practice trading binary options online, the more you will understand. Your goal is to become as proficient as possible under real market conditions. One such way of achieving this is by using the demo trading platform at your preferred binary options broker to fine tune your skills in order to understand the way the markets react.
Binary Options 301
Using the Demo Trading Platform
A lot of the time, people with little or no experience in binary options trading immerse themselves in the markets only to be unpleasantly surprised. The single best way around this is to use a demo trading account in order to obviate the risks of losing real money. The benefits of doing this far outweigh the risks. As a case in point, you will learn precisely how your binary options broker’s platform works. By making mistakes in demo mode, you will avoid them when it comes to trading for real money. One of the things that you will instantly notice about the demo trading account is how quickly prices change in real time. The unpredictability of markets is something that every novice trader is instantly surprised by. You will get to see this with a demo trading platform which mimics real life trades in most every way. If you’re wondering about the pitfalls of using a demo trading platform, there are several. For starters, you will find that your trading actions will be more cavalier because you know you’re not trading for real money.
The second downfall of using a demo trading account is the fact that your usage of such an account is limited by most binary options brokers. They do not want you to use a demo account for too long, because they want you trading for real money. In fact, the vast majority of binary options brokers will allow you anywhere from 24 hours and 72 hours within which to make use of the demo trading platform. This is hardly sufficient time to master the software and gain a solid understanding of market mechanics.
What sort of strategy should you be using?
We have already established that the use of a demo trading account is important. There are some pitfalls to using these accounts, but overall the benefits outweigh the negatives. As always, caution should be exercised when trading binary options. In much the same way as you would not throw money away, so too should you be careful about which underlying assets you place call and put options on. In terms of devising a profitable trading strategy, you will need to gain a solid understanding of market mechanics, trading regimens and the underlying assets of your choice.
The best advice to any novice trader is the following: Start small and work your way up. If you have $5,000 in your trading account, you will not be negatively impacted by placing $5 trades. It takes time to learn precisely what you need to know in order to be consistently successful in binary options trading. Even the experts go through ups and downs, and they understand the market mechanics. What you want to do is to maximise your winning trades and minimise the effects of your losing trades. A loss of confidence could just as easily derail your success as a bad strategy. Be careful not to lose heart when trades don’t go your way; reassess where you’re at and adopt a winning strategy as quickly as possible.
You want to gain as much experience as possible trading under real market conditions without blowing through your bankroll and having nothing left to trade with. Let us take the aforementioned example where you have $5,000 in your trading account and each trade costs you $5. If we assume that you lose 50 trades on the trot, you will only have lost $250 of your $5,000 bankroll. If you lose 200 trades on the trot, you will only have lost $1,000 of your $5,000 bankroll, leaving you with 80% of your initial deposit intact. You can see how trading small in the beginning is beneficial to you in terms of your learning curve.
Things to be careful about when trading binary options
There are short-term trades and long-term trades available in binary options. If you opt for a shorter trading period, you will need to depend on technical analysis a lot more. What is the reason for this? It’s simple really: Short-term price fluctuations are not based on long-term trends; therefore the issues you will be looking at are technical in nature. In any given timeframe of 60 seconds the price action of that asset will fluctuate wildly – almost oscillating like a pendulum – as traders buy and sell that particular asset en masse. However, if we extrapolate over a period of several months or several years, what you will see is a single line that either moves horizontally, upwards or downwards. The reason that you see a general trend developing is a result of the time effect of buying and selling on the asset’s price. Those minuscule price fluctuations exist within the longer-term picture, but they are ironed out by the overall movement of price in a specific timeframe.
At times you will be able to predict with near certainty which direction the price of an asset is moving, but at other times it will be near impossible to do so. Trend analysis is achieved by way of fundamental analysis. By sticking to the basics – following the trend – your predictions vis-a-vis the price action of an asset will generally be consistently correct. Randomly selecting price movements is a recipe for disaster because there is no way to ascertain the future price of an underlying asset that is fluctuating wildly.
There is much debate about the rationality of prices and price movements; suffice it to say there are ways and means of anticipating future price movements and generating profits accordingly. If you look for the tell-tale signs that an asset’s price is going to increase, such as important economic announcements, breaking news stories or underlying fundamentals, you will oftentimes be rewarded for your diligence.
What tools will help you to achieve your financial objectives?
As we have already established, generating income with binary options trading requires a little work. There are certain tools that you can use to prepare yourself for making successful trades. One such resource available to you is a price chart. You are encouraged to use multiple different time periods on these price charts in order to ascertain as much information as you can. For example, you will want to look at the prices above/below your preferred trading time. If you’re trading in 5 minute binary options intervals, look at the halfway points on your chart. This is to say that you should be looking at 2.5 minutes and 7.5 minutes. And if you’re trading in 20 minute intervals, you will want to look at 10 minutes and 30 minutes respectively.
Volume is another important consideration. Most of the time you will not see volume indicated on price charts, but this is not always the case. One of the things you will notice with respect to volatility is that high-volume trading is associated with lower volatility, while low-volume trading is associated with higher volatility. Use this point to the best of your advantage when trading binary options assets.
If you’re wondering how this is done – read on:
For starters, you want to be able to access all relevant information as easily as possible. One thing you should note about prices is that they fluctuate quickly when less people are trading. If we are to assume that the Fed is going to increase interest rates, and it is a low-volume trading period, you would be better served by acting on that information at that particular juncture. You could trade the EUR/USD pair by going short on the EUR. When there is high-volume trading, there is a greater degree of price stability in the markets when news breaks. When the volume of traders is low, the volatility increases.
Important points to remember
Everything that happens in the trading arena does so as part of a large system. Everything impacts on everything else, if only in a small way. This is known as the residual effect. We know for example that when the USD strengthens the price of gold declines. This inverse relationship has been in effect for several decades. When the dollar weakens, the price of gold strengthens and when the dollar strengthens, the price of gold declines. Since the USD is the world’s reserve currency, most every commodity is priced in dollars. When the dollar is strong, other countries have to pay more of their own currency in order to purchase the equivalent amount of commodities. Therefore commodities demand declines when the dollar appreciates. This is an important point to remember when making forecasts about price movements in binary options.
There are many other points that you should be aware of including support levels and resistance levels. These are not physical points that you can see – they are shifting all the time. However assets tend to trade within a range. The lower range that supports the price of the asset is known as the support level and the upper range that the asset battles to break through is the ceiling, or the resistance level. If you are aware of these ranges, you can put them to good use when trading binary options especially in 60 second trading intervals. You would be cautious about trading outside of these boundaries for fear of price reversals.
The Bottom Line
While the act of placing a call or a put option is relatively easy, making the right assessment is anything but. However, practice will certainly pave the way for greater success in your binary options trading endeavours. The best way to do this is by using a demo trading account. Once you have deposited at your preferred broker, use small amounts to trade with. That way you will be able to absorb a greater number of losses without impacting on your underlying capital too severely. The more confident you become, the bigger your trades can be, but try to limit each individual trade to a mere percentage of your overall capital. This is how you can get started with your learning curve with binary options trading.