Making Tough Trading Decisions. Not as Easy as Binary Options.
Pulling the trigger can be hard to do for some, a drug for others. Binary Options make trading easy, perhaps too easy. You don’t have to always trade in order to be successful. Know when to say when.
Trading is all about hard decisions. What to trade, when to trade, how much to trade. Simply being able to analyze a chart and predict a direction is one of the hardest things I have ever done. What makes it harder is the addition of emotion. Greed and fear are two of the most powerful emotions and the reason why most people who try to trade for a living fail. For some, pulling the trigger on a trade is the hardest thing in the world to do. The fear of losing is almost enough to keep them out of the market. For others, trading is like a drug. Some do it for fun and enjoy the high trading brings them, some trade because they have to. If there is one thing that sets the really successful traders from all the rest is knowing when to say when.
The best approach to trading binary options is to have a system. Systems are based on strategy, analysis, money management and patience. You have to know what to trade, how to trade and most importantly when to trade. Signals are one indication of when to take a trade, but they are not the only one. You must also take underlying conditions into consideration as well as trends, news, events and other market conditions. Not only do you have to be able to know yourself. You need to know when you are making clear decisions and when your judgment is being clouded by emotion.
The signals, this is what we are all after. Signals that indicate when to buy and when to sell. Learning to read the signals is a lifetime pursuit. Trying to weed out the false signals from the good, picking the ones that will result in profits and not losses. At face value, it seems like a no brainer to say “trade when there is a signal and don’t when there isn’t.” Unfortunately for some the compulsion to enter the market and trade is so strong that they will manufacture a signal. This can be done simply by talking yourself into it. Sitting there thinking to yourself I just know the market is going down in the next ten minutes. Some call it a gut feeling, others intuition. Usually it is indigestion, not a reason to trade an option.
Another way that some people manufacture signals is to adjust their indicators. Sometimes the indicators don’t tell them what they want to hear. Then they adjust their indicators, or maybe even switch to a different indicator, with the idea that they are “fine tuning” their strategy. Eventually any indicator can be adjusted into telling you what you want to hear. There is an old computer programer’s saying; “Torture the data long enough and it will confess to anything”. This is a big mistake. If you are not getting a good, solid, valid signal, don’t trade. Take a break, go for a bike ride or get some errands done. A signal will come eventually and that is when you should trade.
Market condition is another thing to take into consideration when deciding on a trade. Sometimes the market is calm and getting down to business as usual. Sometimes it is being bombarded by news, events or political activity which can cause a lot of volatility. Some strategies work well under one set of conditions and not in others. If you are using a long term strategy you may not want to trade when the market is volatile, if you are using a short term strategy that could be the perfect time for you. Knowing how your strategy works and what conditions are best is another tip to help you know when to say when.
Trader, Know Thyself
Knowing yourself is the hardest thing to do. We are emotional beings; fear and greed are strong emotions. They can easily cloud your mind and influence a trade. Imagine a winning streak of 10 60 second trades, you just doubled your account and are riding high. You decide the Dark Cloud Cover that just appeared on your charts is a good buying point and double down on your biggest trade yet. The next thing you know the market tanks, leaving you out in the cold. Why did this happen? Because instead of reading the signal, the emotions took over and led to a bad decision. If you think this is you, you don’t need to be trading Binary Options. If you can use a systematic approach that employs a strategy and utilizes strict money management rules then maybe you can trade successfully.
Make Hard Trading Decisions – Because Somebody has to Make them
It is true that all our choices affect us in some way and to some extent. Some have little impact on our life; others have a big one and affect us for years to come. Of course, choosing a double espresso over a latte macchiato will not have such a big impact on our lives as choosing a two-room apartment in a busy city over a country house with a nice lawn, a dog and a white fence. This type of decision has a stand-alone impact, meaning that one decision will generate the consequence. But there are other types of decisions: many small decisions will lead to the consequences. Take smoking, for example: It’s bad for your health, but smoking as a whole is composed of thousands of small decisions taken over the course of the years. Each time you open your pack and smoke a cigarette, you made a decision, but that single event will only affect you if it’s part of a whole – one cigarette doesn’t affect your health so much but being a regular smoker does.
In case you’re wondering – No, I’m not going to talk the whole article about smoking or about the purpose of life or how the Matrix should have ended. But keeping in mind the smoking example, think about your Binary Options account: one loss will probably not affect it so much (assuming you apply at least a primitive form of money management), but what about 50 losses? Yep, that will do it; that will wipe it out probably. Even if you don’t care so much about a bad trade, you must understand that it acts as a part of a bigger event which will eventually lead to your account’s demise. That’s why it’s important to treat each trade with the importance it requires and sometimes to make hard decisions.
How Hard can it be?
A loss instinctively triggers emotions. It’s built into your DNA so don’t fight it, instead, learn to control it. If the market just took 100 bucks from you, you will probably feel the need to make it back – it’s a mixture of revenge, wanting to prove you are in fact right, greed and financial concern. The difference between the trader and the gambler is that the latter will yield to those emotions and will open another trade… or roll the dice one more time, it’s the same for him. So if you trade according to a predetermined plan, you are treating Binary Options as a business, but if you are trading just based on emotions, without controlling them, you are just a gambler and your place is in the casino, not on the trading floor.
I talked about trading according to a plan. That plan should be laid out before you start trading because that’s when your mind is free of emotions and the analytical part of your brain can prevail. Once emotions kick in, it’s a lot harder to think straight. You need to have a plan, no doubt, but the more difficult part is following that plan and knowing it’s the tool that helps you manage your money and risk. A basic form of a trading plan is deciding when to stop trading, even if you are winning and especially if you are losing. For example, you may decide to stop trading for the day after three losses or after three winners. Doing that, you limit the risk you are taking and you know the worst that can happen is to lose three trades in a day. It’s tough to stop trading, I know, but after three losses you are probably angrier than you were before, so your chances of winning are slimmer than they were before the three losses.
Almost the same applies to winning: after three In the Money trades, there’s a chance you will get cocky or at least more confident and that’s when mistakes start to happen. So you don’t pay much attention to your analysis or to your strategy and rush in, looking for more profit because it’s fun and it pays off – the perfect combo. Hmm, but gamblers are doing it for fun and traders are working when they trade. If you are at work, then stop after reaching your daily goal. Close the office and head home or drink a beer with friends or do whatever is fun for you… because work is now over.
Plan the Trade and Trade the Plan
Many people start trading Binary Options to achieve financial freedom and quit their regular jobs. Not having a boss is great, but if you want to become a trader, you will have a boss – You. It’s the “You” who is capable of thinking, logical and coldly, not the “You” who is acting crazy trying to immediately recoup all the losses. Making decisions is tough, but you have to do it; you have to stop trading if you are losing in order to avoid further loss and you have to stop trading when you have reached a predetermined daily limit of wins. This will keep you from giving back the money you just made. Decisions are part of your everyday life and of your trading life – go with the trend, go against it, invest $200 or maybe $1K, stop trading, don’t stop trading… Yep, it’s hard, but somebody’s gotta do it and if you want to make money, that “somebody” has to be you.
Binary Options Trader? Trade like the Dragon!
Most of us know who Bruce Lee was. Some of us might remember him as a great actor, others as a great martial artist or both, but I’m not here to discuss that. What I want to say is that he had an amazing way of self-improving by focusing on himself and turning that focus outward. I have discovered that any famous phrase Bruce Lee has said about life and martial arts can be adapted to trading! I’ve practiced martial arts myself from the age of 13 and would like to share with you how to apply Brue Lee’s teachings about discipline and focus to binary options and trading.
Why is Bruce Lee’s Teachings Relevant to Binary Options Trading?
Bruce Lee had the dedication that was necessary for becoming an excellent and skilled fighter and actor. He devoted his time, no his life, to improve as a martial artist and as a person. The key is that his goal, and the goal of martial arts, is to improve as a person and that has a lot of bearing on trading and the trading lifestyle. For this reason I’ve looked through Bruce Lee’s famous quotes and picked my favorites that relate that relate the most to binary options trading. They will give you a hint on how to improve your trading and overcome the obstacles so you can trade ‘Enter the Dragon’ style!
Practice Makes Perfect
I relate this to a trader with waaaaay too many charts and assets opened at the same time. Trying to set a record or something? How can you keep up with all the support and resistance lines and grasp what is going on in the market if you keep changing charts every 5 seconds? You’ll end up completely confused and risk losing lots of actual good trading setups because you are more focused on browsing your charts rather than analyzing the market. Been there, done that… So, a good trader is someone with many hours of experience with one or a few assets rather than a trader chasing too many assets. Practice trading on one asset, learn to know it well and when you can predict what it will do before it does it then it is time to add another.
Adaptation – Be formless!
This is one of my favorite of all Bruce’s sayings and one that has a lot of application in trading. I see too often traders attempting to force the market or their indicators to give them the “go” so they can take a certain trade. This is where you need to consider being formless like water. Shape and adjust your strategy according to how the asset usually moves and reacts. If the market says “I’m going up”, buy a call, if it says “I’m going down”, buy a put, if it says “I’m not sure” its time to wait but don’t never force a signal where there isn’t one. Only then you can flow with the trend and profit.
The Limits of Duplication
Oh, how annoying it is with people duplicating other people just because they lack something of their own. I think we’ve all had similar friends, at least I did. Reminds me of that TV-show called “The Pretender”. Well, at least the guy in the TV-show was duplicating others for a good reason and even had his own “touch” on the jobs and skills he imitated. Don’t get me wrong, go ahead and copy trades it’s OK and a great way to learn but don’t rely on it forever. You need to learn at the same time so that one day you can be yourself and trade for yourself. Like another great man once said, “feed a man a fish, he eats today, teach a man to fish he eats for a lifetime” so don’t just copy successful traders – learn from them too!
Demo Is Good But…
This is my absolute favorite and I relate this to demo trading. Why you might ask? Many martial artists practice years and years of hitting on “dead targets” such as sand bags, boards and bricks. It’s not until the day comes and it’s time for a real challenge, a real fight in a real contest, that they realize they have wasted a lot of their time. Surely they have hardened their fists but they didn’t expect someone actually hitting back which makes a world of difference.