Whether you are just getting started with binary options trading or you already tried this form of online trading before, it’s important to understand some of the common misconceptions and pitfalls that make it difficult for traders to get a foothold in the market. If you are not careful, the following mistakes have the potential to tank your profits and ruin your trading experience.
This calls for serious research to find a legitimate broker. In particular, you want to look for qualities like the deposit and withdrawal policies, customer service policies and security policies. Most brokers offer a minimum deposit amount of 250 USD with minimum investment amounts of $25-$50 per trade. The payout can range from 60 to 200 percent. At BinaryOnline, we offer investment amounts as low as $5 with tools like 60 Seconds and potential payout percentages of up to 1000% with tools like One Touch.
The risks of choosing a scam broker can be frightening and include things like:
The simplicity with which binary options traders can access the financial markets makes them underestimate the importance of knowledge. It’s true that to successfully trade with binary options, it is not necessary to go through formal education. But trial and error is not the best approach to trading either. To understand how binary options work, you need to acquire knowledge, be it from educational articles, e-books specially crafted for beginners and other resources.
To understand how assets and the financial markets behave, you also need to comprehend market analysis. This includes fundamental analysisFundamental analysis is evaluating risks by trying to gauge a financial asset’s value, by examining related economic, financial and other qualitative and quantitative factors. andtechnical analysisTechnical analysis is an analysis methodology for forecasting the direction of prices through the study of chart patterns and trends, past market data, primarily price and volume.. By definition, fundamental analysis deals with global news events and their impact on assets while technical analysis uses charts and chart patterns to identify sound trading opportunities. Technical indicators likeBollinger bandsBollinger Bands were developed by famous technical trader John Bollinger. It is plotted two standard deviations away from a simple moving average.andRSIThe Relative Strength Index is a technical indicator used to analyse financial markets. It is intended to chart the current and historical strength or weakness of a stock or market based on the closing prices of a recent trading periodhave a lot of significance in informing trading decisions.
The pitfalls of neglecting the knowledge part of trading are multiple:
Psychology is a critical component of trading because calm people make better traders. The more emotional you are, the higher the chances that you will make mistakes while trading. In binary options, optimal trading happens when your actions are completely disconnected from your emotions- using rationality only. But this is probably not possible. Instead, you can learn how to manage your emotions with a set of rules.
For example,Out-of-the-moneyThis term refers to the point when a purchased option has no gain and the trader makes a loss on their investment.trades can make us angry and frustrated. The natural reaction is to double down on the next trade in an attempt to try and make up for the losses immediately. More often than not, this results in more losses. Conversely, a winning roll can make traders overconfident and they lose their objectivity. In short, no matter what streak you are in, letting your emotions sway your trading decisions is never a good idea. Every trade should be a well thought out decision.
The dangers of trading emotionally are multifold:
To trade with binary options, you need a trading plan and then you need the discipline to stick to the plan and avoiding impulsive, spontaneous trades. The purpose of a trading plan is simple: It guides your trading in the right direction. It covers everything from defining your preferred markets to determining time frames, position size and exit points.
This outlines how you trade, when you trade and where you trade, incorporating risk and capital management strategies along the way. A trading plan is important because jumping right into the financial market without knowing where it’s going or understanding the signs it provides is a big mistake. For successful trading, you need to find a trading strategy that works for you and then stick to it.
Trading without a plan has many risks.
Lastly, while you can’t control the financial market, you can control your response to it by properly managing your capital and risk levels. Whether you are experienced or not, there are always trades that will end Out-of-the-Money. Losses present no difficulty if you are prepared for them and you remain calm.
For example, if you follow the 5/15 rule of trading where you invest up to 5% of your balance on any single trade and up to 15% of your account in a whole trading session, it limits your exposure. Even if you lose a trade or two, you don’t wipe out your capital.
Trading without a good risk and capital management plan has dangers like:
In summary, binary options provide lucrative trading opportunities but you need to avoid the common pitfalls. The most important thing is to devote enough time educating yourself about the industry and the financial markets before trading substantial amounts of money. This is what will set you apart from other traders.