Having the right strategy is an important part of your success as a binary options trader. This isn’t easy to do, of course, mostly because of the fact that there are so many different methods and strategies out there. You will need to go through the personal process of finding out what your style of trading is, and then finding the appropriate strategy for yourself, but hopefully, we can help you a bit in the process. Here are some things to look out for when observing your own trading, and what you can do to make higher profits in the future.
First, look at the level of risk you are willing to assume. Since you are trading and not investing, we can assume that you have a higher than average level of risk you are able to afford, but there are still many different variations here. There are a lot of things to consider when looking at risk, but the two big ones are the amount of cash you have set aside for trading, and the amount of variance you can safely stomach. Let’s look at each in detail.
Your bankroll is the amount of money that you use solely for trading. It is not used for anything else. It can be replenished if it runs out in the future, but for now, this is it. If you make a minimum deposit to your binary options broker, your risk tolerance is small. You will want to make small trades, and over longer periods of time in order to get the most out of your money. The more cash you deposit, the longer your money will last if you hit a bad streak–and these do happen. Yes, you can open an account at some sites with as little as $200, but if you are serious about turning this into a money making venture for yourself, that’s far too little to give yourself a good chance of success. The bigger your bankroll is, the less risk you will be taking on at one time.
The other element of this is your ability to tolerate variance. Variance is the natural statistical ups and downs that happen in the financial world. For example, if you focus on 60 second options your variance will be much higher because these are harder to accurately predict than the longer expiries are. If you’re looking at four hour trades, on the other hand, your progression will be a bit more predictable and you won’t have as many wild swings in the size of your bankroll. The level of variance is sometimes referred to as volatility and can be assessed by the financial indicator “beta.” This is commonly used in the stock market and can typically be found with just a quick search. A beta of 1.0 means that the asset has average volatility (in comparison to the index that the stock is attached to) while higher betas mean more and lower betas mean less. Finding the beta for other assets is a bit more difficult, but still quite possible.
As you can see, both of these topics are closely related and to a degree, dependent upon each other. You can make the most out of both by planning ahead. If you are a short term trader, the best way to overcome variance is to give yourself a bigger bankroll. Longer term traders will not have as much variance to deal with, and the size of their bankroll is not quite as vital. Either way, you need to have a thorough working knowledge of the market, make appropriately sized trades, and be ready to make adjustments when they become necessary. Tracking your progress, observing yourself honestly, and always assessing your strengths and weaknesses will help you to learn this information as you gain more experience.