Binary options traders frequently battle with emotions in order to become successful traders. On the one hand, the excitement of the market and spotting profitable opportunities drives traders and, on the other, these need to be kept in check in order to maintain a solid and profitable strategy. Trading emotionally is akin to gambling, and is what many experienced traders call the basis of greed and fear which drive financial markets. These two emotions are the major cause of the prices swings that are seen every day as traders buy and sell based on their emotions towards price charts, profit and loss. Unfortunately, experienced traders use their knowledge of the emotional impact of less experienced traders in order to take advantage of this for their own profitable trading. Understanding how to control your emotions will therefore help you to trade binary options profitably and avoid providing profits for other traders.
A solid trading plan will reduce anxiety and emotional trading
The single most effective way to trade binary options successfully is to develop a trading plan, and to stick to it regardless of anything. Choosing your trading strategy will depend of a number of personal factors, including the timeframe and preferred markets, but the ability to follow the trading plan will likely be the single determinant of long term success. Whilst this is fairly straightforward to in theory, actually executing the trading plan in the face of the two emotions mentioned above is far more difficult. One of the ways to ensure that a trading plan is executed in real-time is to have absolute trust that, over time, your system has an edge over the market. The only way to achieve this is through thorough back testing. If a single element of doubt remains during a real time trade you are much more likely to begin to trade emotionally, erasing the hard work of creating the trading plan and join the gamblers.
Watching a trade is a particularly stressful pastime; try a set-and-forget strategy
As we have seen, preparing a trading plan will reduce the emotional temptation to panic with the rise and fall of the market can help to reduce emotional trading. Furthermore, making sure that a large part of this trading plan is focused on the exit strategy will ensure that emotions not to play such an important role in executing the strategy. The beauty of binary options in this sense is that they don’t require an exit strategy in the form of a take profit level once the trade has been planned. Unless a trader wants to actively watch the markets in the hope that they may be able to make an early exit when a trade goes wrong, or to hedge against such losing position, allowing the options to expire without watching the market can be a good option. This will obviously be harder for those who trade short-term expiry times such as 60 second binary options, but for those trading longer, or end-of-day expiry strategies, will often benefit from leaving the trade to play out on its own.
Although there is no definitive way to reduce emotions when trading binary options there are ways which may be able to help. Having a trading plan certainly helps, as does thoroughly testing this so you know that you will have a winning edge if you follow your rules correctly. Binary options, like any other form of trading, is a form of speculation with risks attached to each trade that you make. To avoid the negative emotions attached to trading and the losses that may be incurred it is only advised that you risk capital that you can absolutely afford to lose. This will not only reduce the anxiety of trading but will allow you to incorporate occasional losing trades into your strategy without these depleting either your trading account or enthusiasm.