Welcome back to our Binary Options Guide! If you've been following our adventure into binary options so far, by now we think you should be pretty savvy and well on your way to trading. You know the strategies, the vocab and the importance of practice, but what else affects a trader’s fortune? Today we’ll be looking at the different mind-sets required to be good trader, and how mastering the psychological aspects of trading can lead to success.
We already know that the key to staying profitable when trading binary options is to do your homework and trade strategically. You need a strategy which can be proven to perform successfully in comparison to choosing higher or lower options at whim. This is all well and good, however without the correct mindset, a trader can still fall at the first hurdle.
A trader’s psychological approach is as important, if not more important than the strategy itself. Mind-sets such as being disciplined, accepting losses and money management skills are all an essential prerequisite. However, there are also binary-option specific psychological tricks brokers employ that traders can be susceptible to. Today we'll discuss the main psychological factors that can affect a trader's success.
Above all, traders must be disciplined. This means knowing how to stick to your strategy and knowing when it’s time to stop trading. Finding a strategy that suits you is important. A consistent strategy helps curb temptations to trade based on hunches or impulsive behavior. Having a strategy also allows you to know when it’s best to stop trading and have a re-think. If you’re feeling more like you want to make choices that stray from the strategy, it’s probably the time to take a step back and do something else for a while.
Accepting Your Losses
Part of knowing how to be a good trader is to be able to accept that things can go wrong. It’s important to understand that even when implementing a tried and tested strategy, the outcome of a trade is never certain and sometimes you will lose. Losses shouldn't put traders into a panic and if it does, this is a sign that you’re too emotionally attached to the trade.
The temptation to try and claw a loss back with a unplanned higher gamble afterwards is a natural response, but almost always ends in failure. Rising above this emotional reaction and keeping your faith in your strategy is much more important, and this makes for a more rational and calm trader. This being said, it’s also important to recognize when it’s time to make a change to your strategy. A trader should accept that losses can be frequent, although if they are occurring more often than winning trades it’s time to make some adjustments.
Don’t Be Overconfident
Overconfidence can be a killer. Just because you've won a few bets in a row, doesn't mean that you're now better than your strategy. In a similar vein to accepting your losses, traders need to acknowledge that winning a trade shouldn't impact further decisions.
It’s easy for emotions to run high during streaks of wins or losses, and traders can be tempted to place spontaneous bets when they’re ‘feeling lucky’. Sticking to your strategy when you're winning is as important as when you've suffered a loss.
One of the easiest ways to control emotions when trading is to limit your exposure. It is often advised to never trade more than 8.5% of your overall funds at any one time. This prevents you from being able to lose all your initial capital, and means that you shouldn't be too emotionally invested in the trades.
There’s a lot of binary options advice out there, and sometimes it may be suggested that even trading up to 25% of your funds is wise. It’s important to work out the figures yourself and take into consideration all the variable aspects before trusting advice.
By investing a large percentage such as 25%, it would be very easy to lose your finances very quickly in a series of bad trades. As we said earlier, trades go wrong. This is something you should accept before you even start trading binary options, so it’s always wise to spread your money over a number of trades to minimize the risk.
Don’t ever put yourself in a position where you are dependent upon a win. You should never be trading money that’s essential to your daily life. If you are investing money in binary options trades that needs to be used for primary expenses, you are setting yourself up to fail. If the win is too important, your emotions will be too distracting, causing you to act rashly and forget the strategy.
Using Broker Tools
As the popularity of binary options trading continues to grow, brokers are introducing new tools market to ‘help traders’. However, some of these tools are extremely dangerous to the trader, as they play on the psychological elements of the trade.
The ‘close early’ feature allows traders to expire their bets earlier than planned for a partial loss or profit. You can see why this is appealing if you think the trade might be heading in the wrong direction. However, this impacts the psychological planning that has gone into your trade. Closing early plays upon the fear of loss and therefore undermines the strategy you have so carefully selected.
Another emotion broker tools tap into is greed. Greed makes traders who are holding profitable positions tempted to close early to secure the win. Greed also tempts traders to use other broker tools such as the ‘double up' or ‘roll over' options. These tools offer traders the chance to invest more money when your trade is nearing its expiration, or to postpone the closing time in the hope within the extra time the trade will turn in your favor. However, broker tools should not be implemented unless they are part of your initial trading plan; you must be confident enough in your strategy to stick to it at all times.
Psychology plays a big role in all types of gambling and binary options are no different. To trade successfully you MUST keep your emotions out of the trade. It can seem difficult to stay rational when money is involved and this is why implementing a thought out plan and sticking to it is so crucial. You need to remain cool and calm in the face of losses and know when it's time to walk away.
If you feel like getting your emotions and mindsets in check is too tough a challenge, it's vital that you take some time out before beginning to trade binary options. Having the right psychological outlook as merely an advantage, it's essential to trading.
Other Articles In this Guide:
- Read Now!
- An Introduction
- Key Concepts For Beginners
- What Are Assets?
- Types of Trade
- What is Fundamental Analysis?
- What is Technical Analysis?
- Setting Up A Free Demo Account
- Trading Strategies
- Top Ten Broker Sites
- Industry Regulations
- Frequently Asked Questions
- PDF Download – The Complete Guide
- Presentation: Trading Binary Options — A Step-by-Step Guide