Trading binary options is tricky as it requires traders to come up with an expiration date and this is the decisive factor between a profitable option and one that expires out of the money since its hard to guess where the price will be when you are constrained by the deadline. With CFDs trading trader can close the position at any time she wants. This is the difference which makes it easier to trade CFDs. Binary options have been banned as the instrument in the EU.
Putting the time element on a forecast is essential as knowing where price is going might turned out to be useless unless one knows when that is going to happen. For example, if you are telling me that EURUSD is going to 1.40, I would say ok, this might be possible, but you if you are telling me that this is happening in 10 years from now, then I am not interested since it will probably go up and down meanwhile.
Short-termism can be Risky
Trading binary options, as well as FX and CFDs on very short time frames is a risky business as you don’t have control over the potential outcome. True, you never do, but patterns are harder to spot and to build in very short time. Therefore, trading end of day expiration dates and even end of week/end of month expiration dates is a possibility and, a great opportunity as well for binary options traders.
I mean, if somebody is giving you 80% rate of return on your investment, then waiting until the end of day/week/month for your option is not that hard to do. There are two approaches when it comes to having a money management plan and one of them is suitable to FX trading as well as to binary trading.
Trading the Market Events and News Releases
The first one refers to having a trading plan ahead of market opening on a Monday and this means looking at the economic calendar over the weekend and spot the important economic releases to be announced next week as the economic calendar is available ahead of the actual releases. Then, based on the releases that are going to be announced and the technical analysis as well, two or maximum three currency pairs should be picked for trading. Ideally, they should not be related in the sense that if your scenario is bullish on the EURUSD then try not to pick the GBPUSD to the upside as well as they are directly correlated.
Share of Capital You are Placing as a Trade
The next thing to do is to decide on the money to be invested so look for a proportion of your account and split the amount into equal parts for the currency pairs you decided to trade. For example, if the amount to be invested is 100$ in that week, then split it in equal parts for each currency pair you want to trade and then divide each and every amount that resulted in multiple options with smaller amounts. With binary options the return is fixed and high, on the other side, for smaller investments, CFDs offer leverage to increase potential profit, however, dont forget – this also increases potential loss.
Then I would always trade end of day expiration date on Monday with smaller parts for each currency pair and started with Tuesday end of week and even end of month should be recommended if the price action is happening on the second half of the month, ideally after the 20th of each month. Spreading the risk into smaller pieces is ideal and crucial for avoiding your account to be blown away through excessive overtrading.
Weekly Trading Schedule
The other strategy that can be used is referring to the classical proportion of the account to be invested. For example, invest in each and every trade no more than 2% of your trading account. However, here’s a catch as well as it should be limited to a number of trades per week.
For example, on a 5000$ trading account with 1% per each trade a wise decision would be to trade no more than 10-15 trades/week and this is going to make a heck of a difficult task to blow your account. With this setup, trading should favor short-term expiration dates at the start of the week, namely looking for end of day positioning on Monday and Tuesday as well as end of week and months as well after Tuesday.
A trading week is usually being formed by ranges and fake moves at the start of the week and once Wednesday is coming important news are being released and volatility is rising as well. Keep in mind as well that markets have the tendency to range during summer trading (July and August) as well as during holidays so make sure you calibrate your expiration dates accordingly. Having a money management plan is vital as it keeps you afloat when things go the other way and keeps your confidence at high levels as well.
A sound money management plan allows you to avoid overtrading as well as finding the perfect striking prices for the options that are traded as being patient and understanding how markets are moving as well as what moves markets is what makes the difference between a trader that still struggles and one that enjoys success.