How To Win In Binary Options
Before we can discuss winning in binary options and applying the recommended steps outlined below, we need to establish the type of binary options traders out there.
What works for some users may not necessarily work for others. Moreover, not everyone will be committed to do what it takes to win because motivation and character play a big role in that.
So let’s first meet the people who play binary options, as they can be clearly divided into specific groups based on their desires, motivation, available free time, and patience.
Jack – The Gambler who just wants to gamble
Meet Jack with a gambling personality. He loves the odds of binary options and the rush from 60-second trades online. Jack trades by looking at the tick chart provided by his broker and his gut feeling. He doesn’t do technical or fundamental analysis but he just believes in his luck and intuition. Sure, it landed him in trouble before, but when he is on a winning streak he can make it all back and then some. He approaches binary options like a roulette table in a casino. ‘One must dream big’, he often says.
ADVICE TO JACK – Take all your winnings and run. The longer you play the more you will lose because the odds in binary options are in favor of your broker. If you are in profit than you’ve already won. Now it’s the perfect time to stop.
Lucy – The Bonus Taker who gave it a shot
Meet Lucy who was initially very interested in binary options and has invested some of her money on trades as advised by her broker on the phone. Unfortunately she lost half of her investment already and is now desperate to win in back. Lucy also accepted the bonus offer from her broker and her account is now locked until she makes more trades. She is much smarter with her money than the reckless gambler and she understands that there is more to binary options trading than meets the eye. However, she is still at a university completing her degree and has no time to learn trading now. She is worried that she will lose her money completely if she continues to trade herself.
ADVICE TO LUCY – At this stage your best option is to use a professional signal service and copy the trades of professional traders. Yes, it is a paid service but it will at least allow you to compete at a level where you can actually start winning. Compare binary options signals here. If you don’t have time to learn and practice trading now, using professional signals is your best option.
Dennis – The Trader with a goal to win
Meet Dennis who found out about binary options and got really excited about this new investment opportunity. Unlike Jack or Lucy he does not jump in to start trading immediately. He first opens a free demo account and places some trades. However he quickly understands that trading binary options is not a game and needs a serious approach. Dennis knows that he needs to learn to trade if he wants to keep winning and that he can not rely on everything his broker tells him. He read a lot of sad stories of people who quickly drained their trading accounts by paying heed to their broker’s suggestions and he is smart enough not to make the same mistakes they did. Dennis understands that he needs to have an edge over his broker in order to win in binary options and be profitable.
ADVICE TO DENNIS – Although Dennis is new to trading he quickly grasped that it is much more difficult and challenging that he initially thought. The advice to Dennis is to try to learn directly from a professional trader or other reputable sources and to practice as much as possible before trading on a live account.
Ilona – The News Trader
Meet Ilona who is a very clever binary options trader. She works as a secretary for a mining company and follows world affairs very closely. Ilona knows the mining industry quite well and trades binary options on news and recommendations she hears in the office or the press. She understands the connections between certain current affairs and the prices of commodities. She finds binary options platforms very easy to use and convenient. Ilona trades commodities like Gold, Silver, and Copper but only when she is quite certain of the outcome. Most of her trades are entered via a mobile application and last a few days. She usually wins but suffers an occasional loss too.
ADVICE TO ILONA – As a professional directly involved in the commodity market she has very good access to information and she uses that to her advantage. This edge helps her to beat the broker and make a profit in binary options. Although Ilona’s system has value she could benefit from confirming her trades with technical analysis. However this requires more time and additional set of skills to learn.
There may be other types of binary options traders yet these four types of people generally sum it up. Although some of them may win a few times, all of them will benefit from the following advice.
How to Trade to Win
About 90% of traders lose. Trading is not easy and there is much more to it than placing trades. A lot of trading is psychological but it is also about optimising your odds and controlling your risk exposure.
Below are the steps that should be followed before committing to trade binary options online. More importantly they should be followed by anyone who is serious about winning.
1. Understand how binary options work
This may sound very obvious but many people trade binary options without actually fully understanding how they work. In binary options the odds are slightly against the trader. In a common scenario of 80% payout to a 100% loss you need to win 55.55% of the time to break even. The odds are slightly in favor of the binary broker who makes money from losing traders.
2. Open a demo account with a regulated broker
Trading with a regulated broker is much safer and more secure, but the broker needs to be regulated in the country of your legal residence. For example, if you are in the EU you can use regulated brokers like Anyoption or 24option, both of which are regulated in the EU, if you’re in the USA you’re only option is Nadex exchange.
3. Familiarize yourself with your broker’s trading platform
Once you open a demo account familiarize yourself with the trading platform and all of its functionalities. Make various trades on a demo to see how the platform behaves and how it performs. Also read your broker’s rules and conditions for withdrawal before you make any deposits and begin to trade.
BONUS OFFERS – If you decide to accept a bonus offer for your initial deposit understand that there will be certain limitations imposed on your account, such as minimum amount of trades before your first withdrawal.
4. Choose an appropriate trading strategy
In order to win at binary options you must follow a trading strategy. You will not win by guessing. Your strategy could be based on technical analysis (charts) or/and fundamental analysis (news).
There are many trading strategies available but unfortunately what works for some may not work for others. You can view examples of some strategies by looking at our Free trading strategies section. The strategy you choose should take into account your time availability, experience and your skill level.
5. Use professional charts for technical analysis
Your broker will most likely offer online charts but many traders prefer to use third-party superior charting software for technical analysis. These include free platforms such as MetaTrader or ThinkorSwim.
Using better charting software will allow you to be a better trader. One of the greatest advantages is that you can add indicators and draw your analysis to your charts and it will stay there until your remove it from your charts. Your broker’s charts do not offer this type of flexibility. (All professional binary options signal providers use professional charting software to make their predictions and send signals to subscribers.)
6. Practice your strategy and signals on a demo account first
In order to become confident and test your trading strategy use a binary options demo account. Only proceed to trading on a real live account if you’re winning on a demo account! Otherwise do not proceed to trade with real money.
In addition to trading on a demo account every serious trader should keep a trading journal in which all taken trades are clearly registered, including the reasons for taking the trades and their results. This should be done with utmost care so that it can form a basis for your trading on a live account.
7. Understand risk management/exposure
All professional traders will agree that risk management is the most important aspect of trading. It is also the main reason why even good traders can actually lose money and ultimately fail.
Risk management should be studied on its own but for the purpose of this brief guide, it must be said that you should never trade more on each position than 5% of your investment capital. Many professional traders use 1% or 2% for each position.
If you deposit $1000 into your broker’s account, the maximum amount you should place on a trade is $50, which is 5% of 1000. We use percentage to indicate the trade amount as it is a relative number and should be adjusted with your capital.
If your investment capital increases to $10,000 the maximum amount for each trade could be adjusted to $500. Subversively, if you account decreases to $500 the maximum amount put on each trade should not exceed $25.
8. Create and follow your trading plan
In order to win consistently one should create and follow a trading plan. The plan is basically your trading manual which is custom prepared for you, and only you. Your trading plan should include your strategy, your goals and expectations, and clearly defined rules of behavior. The good trading plan will help you to become a disciplined and a profitable trader.
Before you venture into the world of binary options trading please remember that it can be risky to your capital. Simply put, do not trade what you can’t afford to lose.
Published in Education