How to Write a Trading Plan for Binary Options
If you serious about a business, you need to have a business plan. If you are serious about trading, you need a trading plan. Before you invest any of your hard-earned money, you need to create a trading plan which you will follow each time you trade.
A trading plan is one of the most important tools in trading.
Every Forex trader must have a trading plan, this is also the case with binary options trading, and any other type of trading. In this article we will look at how to write a trading plan for binary options.
Consistently successful Forex traders say that
As a trader, you are faced with two options: follow your trading plan to the dot, or fail miserably.
Here are the main reasons why using a trading plan is crucial. A good plan will help us to:
- define short term goals and overall direction,
- focus only on clearly defined set of rules,
- control our emotions so we don’t over-trade,
- enforce trading discipline,
- increase our confidence as a trader.
In a nutshell, your trading plan should be your complete guide on how you are going to make money in binary options. If you think a plan is not required and that you can memorize and remember all the rules as you swing it, all the best to you. There are many geniuses among us, perhaps you’re one of them. For the rest of us, following a trading plan will do wonders. So here are the basics that need to be included in your plan.
Trading system is the key ingredient of your plan
In order to have a reliable trading plan it needs to include a winning trading system. The system should be tested for at least a month and produce profits before it is included in your trading plan. Your trading system can be first tested on a demo account and once successful it should also be tested on a live account.
Information about your trading system must include the following:
- time frames that you will trade, for example, H1, H4, D1
- the maximum amount or percentage you will risk per trade, e.g. 3% of capital
- the signals or/and entry rules that you will follow meticulously
- expiry times and take profit options
I will only trade the London/US overlap sessions between 10-12 am (New York). I only view H1 charts and all my trades expire in 2 to 3 hours. I only trade in the direction of the trend. I wait for a confirmed signal on my MT4 trading platform and then enter a trade. I only trade 2% of my entire trading capital on each trade.
If you don’t have a trading system that you can use you can buy one by subscribing to professional trading systems by binary options traders. We recommend systems with live trading sessions.
Outline your daily trading routine
Your daily trading routine should be included in your trading plan because it will help you understand your trading patterns but also optimize your day.
The last thing you want as a trader is to constantly think about trading and having missed good opportunities. This can literally drive you and your loved ones crazy. Checking your trading charts and results every 10-30 minutes can quickly turn into a very ugly habit and it usually doesn’t help much.
Your daily routine should include indication of:
- times of day when you will analyse the markets
- times of day when you will place your trades
- times of day you will make notes in your trading journal
- times of day when you intend to check the markets for results
I will look at the charts and analyze the market each morning between 10-12am. I will only do this for a maximum of 2 hours. Within that time if a trading opportunity presents itself I will place a trade. I will check the charts and the trading results when I finish work at 8:30pm. I will only do this for maximum 30 minutes.
Remind yourself to stay cool and in control
As cliche as it sounds your trading plan should also include some points that will activate your ‘trading mind’ which should always be calm and relaxed. Trading with emotions can drain your account very quickly so it is very important to remind yourself not to cloud your judgment with emotions and desires.
In this section you could include a checklist which will put you in the right trading mode:
- I will only trade on a confirmed signal and not make guesses
- whatever happens I will keep my emotions in check
- I will not chase trades or try to make up for a lost trade
- after each lost trade I will walk away for 10 minutes and drink some water
- I will turn each trade into a learning experience and learn from my mistakes
- I will never trade when I’m angry, upset, or feeling low
You can also add pictures, music, or videos to your plan for additional inspiration. Franco, from Binary Options Trading Signals runs a 15 minute inspirational video before each daily trade session. The video, composed of motivational speeches and meditation, helps him and other traders get into the right set of mind before trading begins.
Apply strict money management rules
Money management is one of the most important aspect of trading. Strict money management rules need to be part of your trading plan as well as your overall trading strategy. In binary options money management is easier than in Forex trading. However, this is not to say that there is nothing to manage. Your money is your money. You need to be in control of your losses and winnings and monitor your account balance each time you trade. A word of advise is that you should not spend more than 5% of your trading capital on each trade.
List your short-term and long-term goals
Take some time and think about what you want to accomplish as a trader. This is also quite an important step.
Your goals should include short-term as well as long-term goals and they should not only be about money. You can make them quite personal. Try to answer the following questions:
- Do you want to make a living from trading the markets?
- How much return can you realistically expect each month?
- How much time do you want to work each week?
- How will you become more confident in trading?
Log every trade you make in Trading Journal
A trading journal is crucial if you want to become a better trader. It can be separate from your overall trading plan but it should be viewed as an integral part of it. Based on your journal entries you will be able to measure the results of your trading plan and make the necessary adjustments.
The best way to log your trades is to take a screenshot of your trading chart after you make a trade. Write down the details of the trade (asset, chart, direction, expiry, result) and describe the conditions which led you to take this particular trade.
After each month of trading with your trading plan and trading journal you should study it all in detail and try to identify your weaknesses and strengths. Focus on improving your trading habits and adjust your plan as necessary.Published in Education