Binary Options Secrets – Becoming a Superstar Binary Options Trader
So you’ve heard about how easy it is trading binary options; you don’t need a lot of money to get started, you see guys on YouTube making thousands of dollars daily, you follow the forex market and you have a passion for trading… Now, before you deposit your hard earned money into a binary options broker its important you follow the steps below:
- Broker selection is the key.
Luckily, the internet is a great resource for doing research on brokers. Visit websites, forums, blogs, email and chat with brokers or Forex platform reps. It’s important to conduct due diligence. Not only does your broker need to be reliable, but you also need to trust them with your money. There is a lot of shady stuff surrounding this industry, but don’t let these bad apples ruin it for the ones offering a great platform and user experience. The top broker platforms offer high payouts, quick and easy execution. Although, this sounds simple, it’s important that this does not get overlooked. In fact, this decision will make or break you as a binary options trader.
- Know your odds.
It’s true; the odds can be stacked against you. That should be obvious, whenever you risk more than you can potentially make.
But what are the odds? Let’s say the odds of being right are 50/50. There is a 50% chance the Forex pair will go up and a 50% chance the currency pair will go down. Assume you buy a call option that costs $100 with a payout of 80%
The calculation works like this: $100 x 0.80 = $80 best case scenario
If we are wrong we will lose our initial investment of $100 (worst case scenario)
Our expected return is: (0.5 x 80) + (0.5 x -100)
Which equates to: 40+ (-)50 = -10
Our expected investment value is 100 + (-)10 = 90
Based on this calculation… how successful does our strategy need to be in order to overcome this negative expected return?
No need to bore you with you math, so here is the formula:
We take 1 and divide it by the (expected payout percentage + 1)
For example: 1/(.8 +1) = 55.55%
That means in order for us to break even, our strategy needs to be correct 55.55%
So clearly, the odds are stacked against us.
With that said, it’s important to employ a strategy that provides a statistical edge. Successful binary option traders focus on technical analysis and pattern recognition. The beauty behind using technical analysis and patterns is that you can back test these strategies. Depending on your budget, you can manually back test using a chart. Ask yourself, how often does buying calls or puts work when xyz pattern is identified. The great thing is that this type of research is objective. As the old saying goes; “numbers don’t lie, people do”. For those who have higher budgets, there are computer software packages that can back test strategies/ideas. Nonetheless, the key is to work out statistical upper-hand to beat the odds. Of course, no indicator or pattern will work all the time, however, if the numbers tell you that a strategy works more times than it doesn’t, then it’s worth exploring.
Remember, the odds are stacked against you, but no one is forcing you to trade. With that said, you have the advantage of selecting setups which have proven over time to be successful. Whenever testing out a new strategy, it’s critical that it gets paper traded on a demo account first. Don’t get frustrated if the strategy works and you didn’t make real money. The markets aren’t going away, it’s important that you have your process down pat.
Once you have a statistical edge, don’t drift your style – keep applying and tweaking your trading strategy.
- Money management
This is the final piece of the puzzle. The difference between amateurs and professionals is how they manage their money and size positions. With that said, does it make sense to risk half your trading account on ‘one’ trade? Obviously, no. You want to size your positions so that if you lose the trade it won’t cripple your account. It’s important to track your profit and losses. Ultimately, you want to scale up your contract size as your winning and reduce your contract size as your losing. The difference between pro’s and wannabe’s, is that pro’s don’t see it as gambling, they see it as a game of probability. It’s very tempting for new traders to want jump right in and start trading big. However, if you don’t allocate your trades correctly, you’ll be out of the game before you get the chance to become profitable. For further reading on this subject, please read up on “Kelly and the half Kelly criterion”.
In conclusion, binary options trading is not easy. Your odds of success increase once you select the right broker platform, understand the odds, have a strategy that gives you a statistical edge and learn how to manage your account and maximize your strategy.
