Your trading strategy is where you make your money. There are so many different strategies out there. Some work, some don’t. Some work great for some people, and some lose other people a lot of money. Unfortunately for us, there’s not really an easy way to figure out before you begin what works and what doesn’t. It’s important to have a basic understanding of strategy, but even more important if you want to be profitable is to take a workable strategy and make it your own. This will help you to not only make money, but to make more money more consistently. Let’s take a look at how to get started with forming a binary options trading strategy.
Picking the Right One
First, know that everyone out there claims to have the best trading strategy ever. Just pick this, and you’ll never have a losing strategy again. That’s not how it works, sorry to say. Even a great strategy used by the wrong person loses money.
It’s vital that you start simple. If you have experience trading in the Forex marketplace, for example, start with what you know. Pick the currency pair that you have the most experience with, and go from there. Let’s say you choose to trade the EUR/USD, and your typical trading day consisted of leaving your trades open for around an hour at a time. This is where you should start your binary trading, and then tweak it from there as you gain more experience with the subtle differences of your new toolset.
Now that we’ve established this, your next step will be to take a predictive model that caters to your asset of choice and your strongest timeframe. We want something that will allow you to trade EUR/USD for one hour binaries with the greatest degree of accuracy. Maybe you already have a trading strategy in mind, but just because it worked in one spot doesn’t mean it will work in another. Still, this is far enough out that there’s a good chance that it will. You have far less at risk per trade with binary options, and this could play a role in how you approach your trades. But, instead of going for big wins like you would in the Forex market, you really should start just by looking for wins, even if they’re only a pip in the right direction. That’s the beauty of binary options trading. If you already have a strong Forex analysis method, there’s only small changes that you need to make. The rest is already taken care of.
Risk Management is Always Important
Not to be separated too much from strategy is your approach to risk management. If you do not have a stellar way to negate the risk of losing money, you stand a good chance of going broke no matter how good you are at reading the marketplaces. You can’t risk 50 percent of your account on a single trade in binary options (you shouldn’t do this in Forex either!), because you have a high percentage of losing it all. Instead, you need to find a way to limit your risk, yet maximize your profits. There are methods of calculating how much you should risk per trade out there, but the general rule of thumb is you may risk 1 percent of your account on most trades, and up to 2 percent on the trades you are most confident of. This is something that can be fine-tuned, of course, but it’s a good starting point. Concepts like the Kelly Criterion can help you to refine this approach, if you wish. One big strength of binary options is that they do have predictable outcomes with previously known payouts, and this allows for a more mathematical approach to managing risk.