So you’re new to Trading OnLine on Binary Options? Or perhaps you’ve been trading for a while now and things just aren’t working out for you? Maybe you’re committing one of the mistakes below.
Whatever you do, don’t be too hard on yourself.
Many traders at one point make one (or all) of these mistakes.
Mistake 1: Risking too much
This is a mistake that all too many binary options traders make. Sometimes people view the forex market as a get-rich-quick market and get burned as a result of it. With sensible risk management techniques, trading currency is great way to diversify your portfolio.
Professional traders recommend that you should not trade more than 2-5% of your equity per trade, and the max-draw-down (the absolute maximum amount you’ll let a trade lose) be no more than 5%. Invariably this limits your gains, but most importantly it limits your losses.
The fact is you’re going to have a bad trading day; it happens to the best of the best. But what separates the men from the boys is how they handle the bad days.
Don’t let a bad trading day be your last trading day.
Mistake 2: Never admitting you’re wrong
Whenever you catch yourself saying, “It just can’t go any lower!” it’s time to step away from your trading. Don’t beat yourself up though; it’s human nature: we all hate being wrong and we hate cutting that losing trade.
Try this: instead of setting a normal stop loss when placing a trade, ask yourself, “at what point am I wrong?” This point might be market support or resistance, or when your indicator of choice reaches a certain point.
You might find that the point you are “wrong” isn’t as far away as what your stop loss would have been, meaning it could end up saving you a lot of pips.
Remember, the question is not, “how much am I willing to lose?”
The question should be, “when am I wrong?”
Mistake 3: Pulling trades out of thin air
We often think there are two different kinds of trades: buy and sell. But in reality there is a third kind that often gets neglected: hold. In other words, you can buy or sell, or you can do nothing.
Novice traders often think that they have to be trading in order to be profitable, and when their trading strategy isn’t giving any signals they go off looking for opportunities. More often than not, what happens is traders pull trading opportunities out of thin air and end up getting burned.
Raghee Horner said it best: Don’t look for reasons *to* trade; look for reasons *not* to trade. By having this mindset traders can (hopefully) prevent talking themselves into a bad trade and can (hopefully) look for possible reasons why a trade signal may not work out.
Sure, this cause you to not take some trades that would have ended up being profitable; but you might also find that you miss trades that would have ended up negative.
Mistake 4: Investing money you can’t afford to lose
No matter how good you think your trading strategy is, you should never invest money you can’t afford to lose. The saying “hope for the best, plan for the worst” definitely rings true here. What if your strategy had a horrible day? It happens. You may tell yourself that it’s extremely unlikely that such an event would happen to you, but don’t think for a second that it’s not possible (and if you’ve been trading the forex market long enough you know that the “extremely unlikely” just might happen sooner than later).
And if that happens will it affect your standard of living? Will your spouse want a divorce? If so, then you are investing money you can’t afford to lose.
Last, but definitely not least:
Mistake 5: Letting emotions control you
There is a theme to this article, that being that many of the pitfalls of trading are emotion-based. Emotions wanting us to risk it all; emotions wanting us to keep that losing trade in hopes that it willl become a winning trade; emotions rushing us to a live account instead of slowing down and testing on a demo account first; emotions wanting us to take that trade even though the signal isn’t that good.
Emotions may be the hardest thing for amateur traders to control, but the fact that it’s difficult highlights its importance.
One of the most important things you can do to combat emotions is to develop a well-rounded trading plan and stick to it. Having a trading plan can help you establish do’s and don’ts (i.e., do enter a trade when certain criteria is met, don’t let a losing trade lose more than 5%, etc.), thus helping to remove emotions that make us second-guess.
Another way to help you control emotions is to utilize fractional lot sizes available almost with all trading accounts. The emotions that come with trading are usually different between live and demo accounts, but traders can transition from demo to live by essentially trading cents. Even though you’re only dealing with nickels and dimes, the profit or loss is still real. And no matter how hard you try, that is not an emotion that can be duplicated with a demo account.
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