The Binary Choice and How To Deal With It

the binary choiceThis article will not only illustrate the nature of a binary choice but we will also delve into and explore other factors that make up our decision making process. We will also present the best free tools available to anyone that can help making a binary decision.

What is a binary choice?

When most of us hear the word – ‘binary’ we think about computers. A binary expression in computing is a system with only two numbers 0 and 1.

A binary choice is simply an option between only two things, giving two possible outcomes. You have Option A or Option B. That’s it.

The simple fact is that all of us make binary choices every single day without even realizing it.

It can be as simple as a choice of having a black coffee as opposed to herbal tea in the morning, or it can be a choice between seeing your mother for a Sunday dinner as opposed to going to a concert with your friends.

In binary options trading, you have a choice of betting that the price of an asset will go up or that it will go down in a specific time period.

These are all binary choices.

Although binary choices may seem very simple at the outset, they can be deceptively challenging to most people. I’m sure that every financial trader will testify that a binary choice becomes a lot more difficult when there is a lot at stake.

For some reason when we face a possible bigger loss, our assurance and confidence in our choosing abilities weakens. Why?

One of the main reason for that is the lack of understanding of our decision making process so let us examine the psychology behind our decisions.

Understanding our decision making process

We often make decisions without thinking about how we actually make them. In a way that is the natural order of things and we are used to make decisions without questioning things like:

  • our emotions and state of mind,
  • desires, fears, and prejudices,
  • our physical well being,
  • circumstances,
  • our analytical ability.

All the above can play a significant role in the decision making process.

Our emotions and state of mind

state of mindThis is probably one of the most obvious factors that plays a key role in decisions. Our accompanying emotions and feelings of extreme anger, for example, would most certainly cloud our judgment of a situation.

A boxer in a ring is always reminded to control his emotions and not to get angry even when he is getting punched in the face. The reason for that is to protect him from allowing his current anger to take over the entire tactical plan which he and his coached worked on for months before the fight.

Surely you’ve found yourself in a situation where anger influenced your decision in a bad way, or being too joyful gave birth to a reckless choice.

For a binary options trader, not being able to monitor and control emotions can be absolutely devastating. The analytical approach of a trader requires a cool and calm mind that can remain flexible and disciplined.

One of the easiest ways to monitor and control your state of mind is to actually ask yourself in the decision making process questions such as:

  • how do I currently feel? Am I angry, depressed, happy?
  • is my decision influenced by how I currently feel?
  • is there any at all correlation between my feelings and my decision?

These questions could be included in your trading plan and they will help you to establish whether the binary choice you are about to make is not compromised and clouded by your emotions.

Our desires, fears, and prejudices

Desires, fears, prejudiceAll of the above are likely to play a major part in your decisions. However, in order to understand to what degree your decisions are influenced by your desires, fears and prejudices is very difficult, if not impossible.

As any psychologist will tell you, examining your own fears and desires is not an easy task, especially when done by ourselves. The reason is that we lack the necessary distance to ourselves to be able to understand our own desires, fears, and prejudices clearly.

It would be similar to a doctor operating on himself. It’s possible, but it probably won’t be very well done.

Binary option traders are especially prone to their desires and fears. The desire to win and the fear of losing can easily cloud any trader’s judgment. The best traders are those that remain indifferent to winnings and losses but simply focus on executing their pre-planned trading strategy.

One of the best methods for self-control, focus, and awareness which is often recommended by successful traders is meditation.

(No, you do not have to become a Buddhist and believe in Buddha.) Meditation is about focus and about uncluttering the mind. Meditating 30 minutes before each trading session will relax the mind and improve concentration. Regular meditation practice will increase the ability to focus and to self-control, essential traits of a successful trader.

If you never meditated before, or you think it is too boring, consider using new meditation methods that are inspired by new research and technology.

Many professional traders practice meditation because it works, it helps them to keep those extreme feelings of desire and fear in check. They might not be able to control those emotions, (after all, traders are human too) but they will be aware of their presence and influence.

Our circumstances

circumstancesThis is one of the most obvious factors that impact our decision making process.

Our circumstances often dictate what we are thinking about. A trader who is trading from home in a room with three kids and a dog will undoubtedly underperform.

The markets  apply enough pressure to any trader so additional pressure from other sources is a disadvantage. (Keep in mind that when you’re trading binary options the odds are already against you about 55/45.)

When you’re under pressure to leave the house quickly, or to go to the toilet, or to have a conference call with your colleagues in a few minutes, your decision making will most likely be affected.

Each trading session should have no distractions allowing you to focus and think clearly.

A simple approach to resolve the issue of distractions is to control your environment as much as possible and to optimize your trading time. Instead of trading 4 hours a day with distractions, it will be better to trade 1 hour a day but with no distractions.

This will not only help you trade, but it will also reduce your risk exposure. The logic behind it is simple and can be illustrated in three arguments:

  • When we are distracted, we lose more often.
  • When we don’t trade when we are distracted, we don’t lose at all.
  • When we trade with no distractions, we can focus better and win more often.

Our analytical ability

our analytical abilityOur ability to perceive and process information plays a crucial part in our decision making process.

A trader with more information and the knowledge of how it applies to the markets will be more successful than a trader who is just starting to learn to trade. It’s common sense.

But it could be argued that this is more than just the knowledge of the markets. It is possibly something that has to do with our inborn intelligence.

Recently, I watched a film called ‘Limitless’ about a man who is exposed to a new illegal drug that allows  users to use all their brain power. (This is based on the assumption that on average humans use about 10% of their brain, a statement which has no scientific evidence.) In one of the scenes in the film, the enigmatic dealer says: ‘It works better if you’re already smart’.

This could be applied to some of our abilities, mainly the ability to process information to a desired effect.

To a certain degree, intelligence and our analytical ability can be learned through exposure to the right education, people, tools and workshops. However, all of this will work better if the person also has a natural ability to process information.

The good news is that in order to trade successfully one does not need to be equipped with super intelligence and analytical hyper powers.

Trading is quite technical and there are specific methods and clearly defined strategies that can be learned through diligent practice and market exposure.

Knowing and following a well defined trading plan with a good strategy will help with the decision making process and sharpen our analytical abilities by reducing factors, which are not included in the plan.

Published in Education

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