Here are some rules for sensible investing! These rules are general guidelines how to behave when trading binary options. If you want to
1. Watch out for trading psychology
Humans are all but rational. While our analysis might be guided by clear rules how to predict binary options outcomes, it is dangerous to succumb to one’s own emotions when trading. Free and fear can both cause suboptimal trading results. Make sure to follow strategies, hunches do not help!
More on psychology in trading:
- How to control fear in binary trading
- Market psychology
- Rober Schiller on How Psychology Drives Markets (YT Video)
2. Plan your risk exposure
Following the first rule, try to think rationally an make sure to avoid risks that can affect your existence. Be aware that risk is part of the game and never underestimate it! Make sure only portion of the portfolio is in high risk trades.
3. Trend is your friend
There are various trends that can be seen in the market. Fundamental trends are usually longer lasting an require clear thinking when volatility ensues. Technical trends are more short term and require a more active approach. Riding a trend makes sense if there are no signs that signal possible reversions (like high RSI, late arrivals etc…)
More resources on trends:
4. Binary options trading is an art
While many strategies and technical analysis rules may look as if they can promise secure binary options trading outcomes – one thing is sure, trading is not a science that has fixed rules (at least not the ones that are easy enough for us to grasp). Binary options, as all financial markets are places where humans (and many computers) exchange. They are rules by their own logic which no individual investor can see since no one holds all the information. In binary options this means that experience is needed as well as good education provided by the broker.
5. Recognize point of entry – exit on time
See fundamental indicators as a strength that will be a signal for price move in the future. Use technical reasoning to know when the movement is done and reversion can happen. Fundamental movements result form macro factors and firm-specific news. Technicals are seen in charts of the binary options platform.
6. Patience is a virtue
As already noted in rule no. 3, while riding a trend there will come volatile times when it might look good to exit the binary options position through the early close. But even if this risk management tool is helpful, it is only useful as much as we follow rule no.1. Patience always wins over irrational thinking in binary options trading.
7. Use Stop-Loss and be Humble
It is good to overcome greed by limiting daily winning trades. Also, it makes sense to go in the opposite direction and limit losses. This system of checks and balances, together with the rule no. 2 will help long term trading success even if it looks limiting in the short term.
8. Master the Money Management
It is crucial not to make too big trades relative to the overall amount of funds on the binary options trading account. Most binary brokers will enable 8 or more minimum trades with the lowest minimum deposit. Trade size of 5% is usually the rule of thumb.
More info on money management:
- Trading Plan – Money Management
- Money Management – Portfolio Management
- Money Management – Avoid Overtrading
9. Do not Overexpose to One Trend
It is fine to ride the trend but it should be wise in terms of the overall portfolio risk management never to invest more than 15% of existing capital in a single trend because this creates imbalance in portfolio. If risks materialize, the portfolio and capital are preserved.
10. Smart trading knows limits of financial exposure
Investments are simple when it comes to risks. The higher the risk, the higher the reward. This rule is a combination of several rules, the most notable rule being that traders never put all their money into trading. Trading is fun, but the error of trading funds one cannot afford can be very costly in terms of physical and mental wellbeing. This is a mistake desperate people often make, creating a vicious circle. Never rely on binary options trading to solve your life’s problems!