Why You Need A Binary Option Trading Plan
When I first began trading binary options several years ago, I was fascinated by the ability to make money in such a short period of time (I traded 5 and 15 minute expirations).
Unlike traditional investing, I absolutely loved the immediate gratification that can be found in trading binary options. I also liked that I did not have to wait a long time to see whether or not my trades would become winners.
But it’s that same flawed mentality that initially caused me to fail and lose my money on the first couple attempts. Fortunately, my initial account deposits were small, so the damage was easy recover from.
Successful binary option trading is a business, not gambling
Unfortunately, many people view binary options trading as “easy money.” This is definitely the wrong approach, and having this mentality is a surefire way to drain your account.
However, the good news is that after I finally started treating binary options trading is a business, rather than a casino, the profits steadily began to roll in.
Do you know many businesses that haphazardly take uncalculated risks and succeed over the long-term? I don’t.
Therefore, before getting into binary options trading, it is absolutely imperative that you adopt and maintain a mindset that this is a business.
Can you name the one common element that nearly every successful business owner (of any type) has in common? Yes, they pay taxes, but that’s not what I had in mind.
I would be willing to wager a bottle of single malt and box of fine Cuban stogies that, regardless of business size or type, the one common link of every successful entrepreneur is each had a detailed, written business plan from the word “go.”
Furthermore, these entrepreneurs are still following a continuously evolving version of their written business plan to this day.
One more trivia question: Why do so many people trade binary options as if they are in a Vegas (or Macau) casino?
For some people who attempt to trade binary options, obsessive gambling is unfortunately in their DNA. But that’s not the group I am referring to.
Rather, I am asking why intelligent, careful, and even non-gambling individuals still appear to outsiders (such as professional traders) as gamblers anyway?
Do you know why?
It’s usually because they lack a comprehensive, written trading plan. And THAT, my fellow trader friend, was precisely the problem that initially caused me to hit a brick wall.
Plan Your Trades and Trade Your Plan!
Here’s a mantra you need to memorize and file away in your head: “Every day, I plan all my trades and trade my plan.”
Just as a GPS unit enables you to easily drive to your intended destination without going astray, a trading plan simply keeps you focused on getting to your destination (consistent trading profits) without forgetting the key rules along the way.
So How Do I Go About Making A Trading Plan?
By now, you may be thinking, “That sounds great, Matthias, but how do I actually go about making a trading plan?”
Well, the good news is that developing a basic binary options trading plan is easy. It doesn’t have to be fancy; it can be handwritten or typed on your computer.
The most important point, however, is that it must be written because a plan in your head is easily subject to abrupt change when your personal money is at risk.
Here is what needs to be in your initial trading plan:
- Maximum simultaneous risk exposure – It is important to determine the maximum percentage of your total account balance you will risk at any given time. For example, if you risk 5% of your account value on any single trade, and limit yourself to no more than three simultaneous open positions, the maximum risk would be 15% of your total account balance. My personal suggestion here is to start with the maximum risk exposure of 15%, then gradually work your way up to a maximum of 30%. I would not recommend risking more than a total of 30% at any given time, as a substantial losing streak could wipe out your account.
- Maximum individual risk exposure – This is simply the maximum percentage of your account you will risk on any individual trade (such as 5% in the example above). Again, 5% is a conservative starting figure that allows you a large margin of error while learning the business. As your confidence in profits grow (thanks to our winning binary options trading signals), you may consider increasing this amount to 10% per trade. But again, I would not recommend ever exceeding this level.
- Brokerage selection – Many new traders of binary options simply open an account with the first broker they come across on the Internet. This is a mistake because the types of options available, financial stability/reputation, payout percentages, withdrawal procedures, and other key factors vary greatly from one broker to another. So, do your homework and compare these elements. Obviously, you have many choices, but I have personally been very happy with the recommended brokers listed on this page (open a new qualified account with one of these brokers gets you free access to Binary Signal App).
- Preferred payout – The most reputable brokers give you a choice on the payout percentages you wish to receive. Generally, the greater the percentage payout you choose for winning trades, the lower the rebate for losing trades. Therefore, you need to decide which payout level you will choose in each and every trade and write down. My advice in this regard is to select the lowest payout percentage in the beginning, because you are likely to have a higher percentage of losing trades why you’re still learning. But as you get better at picking winning trades, it makes sense to increase the winning payout percentage you will receive.
- Time frame – Typically, you’ll be able to choose an option expiration time of a few minutes up to an entire day. The benefit of a shorter time frame is that it allows you to see the results of your trade, and potentially realize profits, rather quickly. But the disadvantage of trading in such a short time frame is that it’s more difficult to predict price action. Conversely, trading binary options with a longer timeframe requires a bit more patience, but the direction of the price may be much easier to anticipate. Binary Signal App currently provides you with both 5 and 15-minute trading signals, so you don’t have to wait long before seeing the winning trades.
Get the idea?
This is your road map to success (no GPS required).
One key point is that your trading plan only works if you follow it (refer back to the mantra above). So, be sure to print it out and keep it near your computer at all times.
This is only the first blog post with my binary option trading tips, but I’ve got a lot more details I will be posting on the blog in the coming weeks (remember to bookmark this blog) to set you on the path to profitable binary options trading using Binary Signal App.
Nevertheless, you can throw all the rest of the upcoming trading strategy tips out the window if you don’t take the time to implement this first rule of developing your initial trading plan.
In my next blog post, I will tell you all about the most dangerous thing to be on guard against in the business of binary options trading (hint: find the mirror and you’ll be looking at it). Then, I will share with you some more simple, yet very powerful rules help me become the successful binary trader I am today.
Download our Android app to try our live binary option trading signals free for the next 2 weeks (just $50 per month to continue after the trial period).