The Pitfalls of trading Binary Options

Andrew Drexler
Mar 13, 2018 · 4 min read
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Do not have unrealistic expectations: Why do you want to trade binary options? If you think you are going to make a lot of money in a short period of time, then you are gambling. You have the mindset that favors the broker and his odds, since he only makes money when you lose it. Yes, it is possible to win at this game, but only if you attack it from a disciplined perspective. Do you imagine having 5 to 10 options open at any one time? First, this strategy will require a considerable deposit to survive the long run, and second, the best way to win is when the market is trending, and it only does that about 30% of the time. Binary options do remove many of the complicated parts of traditional trading, but brokers are in the business to make money at your expense. Resist the temptation to gamble at every turn.

Resist the impulse to pick random trades: The biggest mistake made by newcomers to the binary option space is to pick a few positions totally at random, just for the excitement of it all, without any step-by-step plan to guide their choices. Success with this medium requires that you guess correctly 6 to 7 times out of 10. If you rely on intuition, you will fail in the long run. Remember that if you feel like you are gambling, then step back. Take the time to take tutorials, understand the “dos” and “don’ts” of this game. Practice on a demo system until you find a way to achieve a high winning percentage. Follow this logic, and you will not be playing into your broker’s stacked deck.

Know your asset or expect the worst: Trading on hearsay or rumors is another big problem. If you have heard something in the news about a particular asset, then the market has more than likely already adjusted to the news. Predicting how an asset will react in a minute or hour or week is extremely difficult, nearly impossible. How do you succeed? You let the trend be your friend. You have to be patient enough to wait for trending momentum on an asset that you have studied and understand. Invest the time studying how your chosen asset reacts when trending. Does it often overshoot the mark at some point, when investors take their profits? What time of day is the asset most active? Higher volumes lead to more predictability. Again, if you blindly pick options at a whim, you are gambling, plain and simple.

Overtrading can bring you down: Are you constantly active in the market or are you patiently waiting for the best setups before acting on your plan? This may sound like a trick question, but trading too often can be a big problem. The reasons for over trading are never good. Impatience, ego, emotions, unrealistic expectations, the need to recover prior losses quickly, or the need to double your account balance quickly — each of these issues can pressure you into abandoning your plan and resorting to gambling type behavior. Accepting that losses are part of a winning strategy can also diminish over trading. Remember that for every ten trades for a successful trader, 7 trades are winners, and 3 are losers. You have to lose a few.

Be wary of all promotional bonus offers: The biggest complaints that you will see on Internet sites devoted to binary options have to do with withdrawal requests being ignored. Most of the time, the newcomer has accepted a large sign-up bonus, then lost money, thinks he has been scammed, and then asks for a withdrawal. If you accept any promotional bonus, be sure to read the fine print in the terms and conditions for your broker. Your deposit and bonus will be tied up until you trade a specified number or dollar amount of trades. The broker expects to get his bonus back and then some, if you comply with these terms. The odds favor the broker. If you have complied and still receive no withdrawal funds, then question the legitimacy of your binary options broker. It may be time for a change.

Keep your emotions at bay: As you may have surmised by this point, there is a fine line between trading and gambling when you jump into the binary options arena. Many brokers try to blanket their websites with investment terminology, but do not be fooled. They want to tempt you to discard your plan and experiment with their vast abundance of asset choices and platform features. The more distracted you are, the more the odds are tilted in their favor. They are appealing to your emotions, which have no place in trading decisions. A disciplined approach is the only way to win at this game. The odds are already stacked against you. Do not expect Lady Luck to save you. She will turn a blind eye, while the broker wins at your expense. At the end of the day, binary options can be a fun and exciting trading medium, but remember to stick to your step-by-step plan and enjoy the process.

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