Reasons of losing money in binary option trading
Why did I start trading? No matter how many times I ask myself that question, the answer is the same: to be free to do the things I like. I didn’t want to have a boss or to be a boss anymore. There was nothing wrong with working (trading is a lot of work too), just that I didn’t like getting up in the morning and doing the same thing every day in anticipation of a paycheck which only allowed me to cover my basic needs. Ok, that’s a brief explanation of my reason, but it doesn’t mean other reasons are wrong. People may choose to trade Binary Options for the thrill, for fun, as a hobby, as a side business and all of them are valid reasons. The thing is that once you know why you are doing something, you can start doing it right, so why do you want to trade Binary options?
Do I Want to Trade for Fun and Thrill?
I must admit that watching a trade complete its course can be fun. Well, not actually watching those candles go up and down – that’s pretty boring – but thinking about the money you are going to make is fun. While the expiration approaches and your trade is well in green territory you start thinking about your next win and then “What if?” comes to mind: What if I could make this amount of money every day? What if I can do it for an entire month or even year? Yep, that’s fun but then again if you’re doing it for fun, why don’t you go to a casino? It’s a more social experience; you meet people, waitresses with deep cleavages serve you drinks, everybody pays attention to you if you win… come on, wouldn’t you “trade” that over a lonely computer screen? And anyway, roulette is not that different compared to Binary Options if all you do is gamble. Sixty seconds Put or Call, Red or Black… all the same, all fun, no pressure.
Do I Want to Trade as a Side Business?
Some guys start trading to add a little extra to their income. You know, the salary pays the bills and profits from Binary Options pay for the car you always wanted but was too expensive or for an extra star at the hotel you’re gonna stay during your next family trip. Usually guys who look at binaries this way are a bit more conservative than the ones who do it just for fun. The difference is that the first guy gets his thrill independently of the outcome of his trading: win or lose, it doesn’t matter because he is not trading for money but for the feeling he gets. The second guy has a goal to achieve; he needs to make money out of trading and he cannot afford to lose part of his salary, which pays the bills. Furthermore, he cannot be suckered in by brokers who ask him to deposit more for a bigger bonus or by scammers who promise the Holy Grail for $99,97.
Do I Want to Trade for a Living?
If you are trading for a living, you will have a much bigger pressure on your shoulders than the Fun Guy or the Extra Income Guy. The first one doesn’t feel any pressure because he doesn’t trade for money, just for the thrill; the second guy needs the extra income to achieve better quality of life for him and his family so he has some pressure but he also knows that bills can be paid from his salary. Now, the Trade-For-A-Living Guy, the one who wants to become a Pro and to make his money exclusively from trading is under a lot of pressure. After all, if trading doesn’t work, how is he going to pay the bills? In fact how is he going to eat if his trading is not successful? Borrow money for food and rent? That’s a gut wrenching feeling… and needless to say, this guy has to be on top of his game. He has to be a well oiled machine that does exactly what it’s supposed to do, exactly when it’s supposed to do it. Countless hours of learning and practicing are required and the decision to trade for a living must be made only when you are in complete control of all the aspects of your trading. Be prepared because the road is long and tough… but the rewards are almost amazing.
Which One is Best? Which One Should I Choose?
No matter what path you choose to follow, make sure you stick to it and don’t mix it with others. In other words, if you want to make a living out of trading, don’t treat binaries like a gambling instrument. If you choose to trade BO for fun, why bother with strategies and learning stuff? Just trade! Because all the complicated terminology and concepts can take the fun of out of it. There’s nothing wrong with trading for fun or gambling on binaries as long as it makes you happy… just don’t assume you are a trader. Bottom line is: the best way is the one that fits you, not the one that others consider best.
Why is it that many people don’t make money in binary options?
Based on my experiences with losing traders I have come up with these 6 main points and mistakes that traders commit, which results in them losing their account balances.
Many beginners just make random trades
I’ve noticed that the first few trades of a substantial majority of newcomers is a completely random trade that has no rational and empirical basis whatsoever. The most common first trade seems to involve currencies such as the USD/EUR or similar.
It seems that these trades are committed for the simple reason that many newcomers simply have no idea what to do right after they sign up. They probably have heard in the news that “the US Dollar is strong” and therefore one of the first things they do they invest in the USD/EUR increasing.
Such trades are very superficial and unempirical. Just because you heard in yesterday’s news that the “USD is strong” it does not mean that it will increase compared with the EUR at any moment in time.
Since most newcomers invest in short time frames (short expiry times), the fact that the “USD is strong” bears no significance on what’s going to happen in say 60 seconds from the moment you make your investment.
How to avoid this:
If you are a complete newcomer and have just signed up, you should look into simple binary options strategies involving candlesticks and trends. These strategies are simple enough to be suitable for beginners. Do not trade until you understand how these strategies work.
Many beginners immediately focus on 60 seconds options
Unless you do already understand the strategies and trends that were discussed in the link posted in the previous segment you should avoid trading short-term options altogether.
Short-term options are options that have very low expiration times such as 30 to 60 seconds. It is not possible to any person in the world to accurately predict short-term options without using the strategies described above.
So, if you are a complete beginner and not yet understand how to read charts and how to conduct fundamental analysis, then you have 0% chance of making any money in binary options. This is a fact. Not many other websites will admit this because they want you to sign up at the brokers they promote.
How to avoid this:
If you are a beginner you essentially have two choices. Fist, you delay actual trading and take your time in order to understand fundamental beginner binary options strategies first. Once you understand all of these you can start trading.
In the meantime however you can trade long-term options instead. Long-term options are options with long expiration times such as several days to even months. The reason why you should do this is because casual information such as “the USD is strong” can here indeed help you to make money.
The fact that the USD is strong could highly likely mean that the USD is expected to increase compared to other currencies during a longer time frame (say a week or a month). So, if you have heard in the news that the “USD is strong and is expected to rise” then long-term trades (such as with expiration times of a week or more) are an almost sure way to make money.
You can read more about long-term binary options strategies here.
Many beginners do not manage to choose the correct assets
This point is related to the first point, where many beginners trade randomly without any prior thought. Many brokers can offer several hundred different assets but this does not mean that you will have to trade on all of them.
Why should you trade on an asset such as RUB/JPY if you really do not have any idea how this currency pair will evolve in the future? Such a currency pair is also so low profile that you will not find many market analyses and news about it.
The same is valid in the case of stocks. Why would you want to trade on some remote Russian or Chinese company no one talks about and as such no one has a clue how it’s value will develop in the future?
What to do instead:
If you are a beginner you should focus on high profile and mainstream assets such as EUR/USD, USD/CAD, Apple, Microsoft, Google, oil, etc.
This is because everyone is constantly talking an analyzing these assets and stocks. With a quick Google search you can find dozens of high profile and reputable publications that constantly talk about and analyze the development of these assets. You can then make much more accurate predictions based on this information.
A lot of traders trade at shady brokers
If you are a newcomer then you most likely have no clue which binary options broker is actually legitimate and which isn’t. You might browse the web looking for information of binary brokers and then later get bombarded by a lot of advertorials on various sites about some unknown and random broker.
You then will have no idea that the broker advertised is a random broker or not. You will then sign up and even if you do understand all the previous points in this article you will still lose all your money because the broker might simply steal it.
The truth is that there are indeed unfortunately many scam binary options brokers, as you could see in the article that I specifically written on this subject.
What to do instead:
You should make sure that the binary broker you chose is legitimate and is not a scam. You should not register at a random broker on which you have no background information.
I have written an expensive guide on how to find the best binary options brokers. You can check it out and see what criteria I look at when I evaluate a binary broker. You should use the same criteria as well before you register at any broker.
You were taken advantage of by a scam binary signal
There seem to be many products and websites out there that claim to be able to help you make accurate predictions and then make a lot of money in binary trading. Beginners are especially susceptible to these products because they claim that they can help you make money without you having to do anything at all.
The truth is that the vast majority of such binary options signals are scams. The overwhelming majority of them only wants you to register at a binary broker they “recommend” because they broker will then pay them a marketing commission.
How to avoid this:
You should understand that most binary options signals are nothing more than marketing scams and they do not work. This should be your premise before evaluating any such product.
If you would want to register at such a product, first the product would have to convince you that it is not a scam, as you initial premise will always be that it is. If you employ this attitude you will never have any problems with such fake products.
I have written a detailed guide on binary options signals. You can check this out if you want to find out how these products work and how to find the very few products of this kind that do indeed work.
You have invested too much per trade with a low initial deposit
This is probably the top 1 reason you have lost all you money. If you do this step wring then you will lose all your money even if you avoided committing all the previous 5 mistakes together.
The idea is that binary options success is a thing of statistics. The reality is that anyone and at any moment in time will still have a certain number of unsuccessful predictions. This is valid even in the case of top-notch experts.
Your goal in binary options will be to have a winning rate that is high enough for you to be making profits. Since brokers usually offer payout rates around 80%, you will the n have to achieve an overall winning are of around 70% to make money.
This means that on average you will have to accurately predict 7 trades out of 10. Now, it’s very unlikely that you will predict 10 out of 10. You will still have some unsuccessful trades from now and then.
The issue however is that these 3 unsuccessful trades out of 10 (this is just an example) could very well be your first 3 trades. Now, if you have deposited $200 at your broker and decided to invest $100 per trade you would have lost all your account balance during your first 2 trades.
How to avoid this:
You should always invest in proportion of your deposit or account balance. As a general rule of thumb you should never invest more than 5% to a maximum of 10% of your total account balance on one single trade.
This means that if you have made an initial deposit of $200, then you should only invest between $10 to $20 maximum per individual trade. This puts you 10 to 20 individual trades away from going bankrupt.
If, however, you do employ the winning strategies described in this article and linked in other articles and do reach a successful prediction rate of at least 70%, then you will most definitely make money.
I have written a detailed article on how much you should invest per trade. Please definitely check this out before you actually start trading. This information is very crucial and can mean the difference between winning and losing.
The bottom line
Especially important is the article about how to correctly conduct technical analysis for beginners. Without understanding this should not stay away from short-term options. In the meantime however you can definitely trade long-term options instead. You will also have to learn how to find the best binary brokers before you actually deposit and understand how much money you should invest per trade in order not to go bankrupt. Finally, understand why most binary options signals ate scams and how to find the few ones that are legit. Thanks for reading this far and good luck becoming a successful binary options trader.