Throughout this guide we've been emphasizing the importance of practice when trading binary options. We've talked you through fundamental and technical analysis and identified what makes for a good trader psychologically. Once you've got to grips with these fundamental ideas, finding a really good strategy is your next step to binary options success. Today we'll teach you about trading strategies and the how optimize your trading results by using them. We'll also be talking about the best places to find great strategy tips and how to avoid scams and costly ‘free strategies'. There's loads to be learnt but don't worry, we'll break it down as best we can. So, let's crack on…
What is A Trading Strategy?
In binary options trading, a trading strategy is simply a predefined process you'll carry out when entering a trade of a specific asset. This means you have a clear thought-through plan and stick to the rules you've set out. The rules are built around the technical and fundamental analysis factors we've discussed, and conditions which have shown to increase the probability of a winning trade.
Strategies involve recognizing patterns in the behavior of asset prices. For instance, you might notice that every 20 minutes, the price of an asset rises (patterns are usually more complicated than this – this is just a crude example.) From this, you'd plot out your trades every twenty minutes to reflect the pattern you saw.
In general, the most effective trading strategies are simple. Incorporating more rules or indicators does not always help a strategy succeed; keeping your strategy concise and focused is preferable. However all strategies will not produce good results indefinitely. Strategies must be monitored, and when you can see that your strategy is under-performing it must be revised. Markets conditions change all the time so it's very unlikely your strategy will work forever.
Another important factor to remember is that even with the best strategy possible, strategies will result in losses. This is where the trader psychology comes into play. You must be confident enough in the strategy to be able to accept the loss. As long as you keep your mind-sets and your money management in check and the overall success rate does not drop, weathering the losses shouldn't be a problem.
Strategies are unique to each asset and time frame. Do not think that because your strategy worked in some conditions it is applicable to different conditions. All strategies should be tested, and you can do this using your demo account.
Why Use A Trading Strategy?
Trading strategies are employed to help traders turn consistent profits. Trading strategies are all about the long game. Over time, a good strategy can really impact a trader's success rate. Here, we'll explain some great advantages about trading with a strategy in place.
- You Will Be Focused on Making Money
Having a strategy in place draws your attention to your account's balance. Increasing the balance should always be the aim, and a strategy helps you remember this fact as you're consistently monitoring the strategies success. It helps you treat binary options as a business not a game and this is the kind of mind-set needed to be profitable.
- Your Success Is Measurable
Winning seven times in a row might tempt you to think you are a naturally skilled trader. In the same way, after you lose seven times in a row you might be tempted to say ‘bad luck' and try again. It's a common reaction to blame loses on bad luck and wins on your trading prowess, but don't be fooled. A strategy helps curb these emotions and makes you consider the facts; it removes the idea of ‘luck' from trading and to measure your success objectively.
- It Stops You From Over-trading
As mentioned in our ‘How to Trade Successfully‘ article, fear and greed are big factors that can sway a trader into making unplanned trades. A trading strategy helps to keep you disciplined and give you the patience to wait for your next planned trade instead of jumping in.
- You'll Know What To Do!
One of the biggest advantages of having a trading strategy is that it provides you with a plan of action. If you are using fundamental analysis, stock market news can sometimes be a little overwhelming. Apple have a new product out, should I trade? The dollar is falling, should I trade? Having a strategy helps focus this constant stream of news and makes sure you are only trading those assets which are relevant to you.
Where To Find Strategies
As binary options is a relatively new form of trading, looking for trading strategies on the internet can be tedious. There's a lot of websites out there offering ‘free' strategies and promising to make you millions overnight. As the saying goes, if it looks to good to be true it probably is.
However, amidst the scams, the growing popularity of binary options means there is also an influx of really useful information, mostly supplied by fellow traders. Checking out forums like Binary Options Edge and making contacts in the binary trading community are some of the best ways to receive trustworthy, quality advice for free. Fellow traders offer a honesty because it's the best way to make sure that other traders aren't getting scammed, and share negative experiences.
One of the biggest things you want to avoid is using a black box system. These fall under many names such as signal providers, signal systems, bots or robots. These are electronic platforms and are marketed as reliable because they are ‘the same as wall street!'
However, the main difference is that when used on Wall Street they are constantly updated and adjusted due to having millions of dollars on the line; in comparison the black box system you buy is likely to have very little support behind it.
The main danger with black boxes is that IT'S NOT YOU. Trading should be treated like a business, YOUR business, and would you put your business in the hands of someone else? These types of systems keep you in the dark. You are never told the logic of how the systems work, only that they're ASTONISHING as you fork out money for the privilege of using them.
The best advice we can offer is to educate yourself, take the time to teach yourself to trade instead of trying to find a quick way to have someone else do the work. The more you invest in yourself, the easier binary options will be and you won't be relying on some sort of robot to supply you with trades.
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