Tips for Money Management In Binary Options Trading
1. Choose your trading strategies wisely
A binary options strategy can make or break your trades. Although there are no perfect trading strategies, there are those that will specifically work for you, depending on your skills level. Trading with a good strategy can be very effective at minimizing you risk exposure. Other than learning from experience, a good way to know which trading strategy is most feasible for a particular trade is to test the strategy using a demo account if you are just getting started. Another way to determine the effectiveness of a strategy is using technical analysis to identify past resistance and support levels, price fluctuations, price trends and other such vital data.
2. Keep your eyes on the number of wins and number of losses
Overtrading can happen to any trader, both novice and experienced. The main reason why binary options investors tend to overtrade is to recoup losses or to attempt to make as much profit as possible within a short period.
The problem with the habit of overtrading is that it causes you to be blind to whether or not you are making substantial profits or losses.
A better approach is to set a trading limit for yourself. So you could say, “I will make X number of trades and I will stop once I attain this number whether I have made losses or profits.”
Alternatively, you could place a certain profit or loss percentage. So you could say, “I will stop trading if I have at least 80% profits and 20% losses.” Or, you could place a dollar limit and say, “I will stop trading if I make profits worth $120 and I do not lose at least $50.”
Setting limits simply allows you to keep perspective on your trade.
3. It’s alright to wait it out
Would you rather risk and trade in unfavorable market conditions with the potential to maximize your profits? Or, would you rather make small gains in a less risky market. This is a major dilemma for all traders.
To protect your money, you are better off waiting for suitable market conditions before making large investments. There is no guarantee that your trades will always end in the money even in a risky trading environment. You may opt to stop trading until the market conditions are favorable to your strategy. An even better approach would be to continue trading with smaller investments. Staying in the game has a greater advantage than waiting it out altogether because you can still move with the trends and leverage them when they change to your advantage.
4. Don’t be afraid to diversify your portfolio
Without a doubt, diversifying means putting in more money to buy different types of assets. But is that good money management? Yes it is—what’s really great about portfolio diversification is that it lowers your risk exposure and increases your profit potential. However, it’s not enough to just diversify; you need to invest in a good mix of assets that will not leave you too exposed to changes in market conditions.
Discipline is at the heart of successfully binary options trading or any other type of trading for that matter. Your best bet in managing your money is keeping good perspective on each of your trades.