Planning is everything in binary options and a well executed plan equals a consistent trading strategy. Although this sounds obvious, creating a trading plan when the market is moving in front of your eyes and, more importantly, sticking to this throughout the trade is one of the most difficult aspects of binary options trading. Since trading is about reducing emotion and applying a method within the madness of the markets having a plan for each and every trade is essential to achieve consistent success.
What to look out for when planning a binary options trade
The first thing that most binary options traders do is to look at the potential profits of each trade. Whilst this is not wrong it can become something of a preoccupation with many successful traders suggesting that a focus on the potential losses, should the trade be a disaster, is the most successful way to plan a trade. Assuming we don’t all have this discipline and want to look at what we can earn when planning a binary options trade, it is important to remember that binary options is different from regular trading in several respects.
First, binary options are not valued on the degree of the movement from the strike price (the trade is simply based on a higher or lower prediction) therefore a trader will need to establish when the trade is likely to be in the money and set an exit timeframe accordingly. Second, because they don’t rely on the degree that the price moves the potential losses will never increase. This is good news for those who don’t enjoy placing stop losses as there is absolutely no requirement for these in binary options trading. Finally, binary options platforms are not renowned for their charting software so having additional access to charts is essential especially for technical traders.
Involving the variable of time
Planning a trade should involve using a coherent strategy that has reliably performed over time. Having this confidence will make the trade both much less stressful and also provide you with the consistency that you will need to succeed. This will inevitably involve extensive back-testing and, unlike regular forms of trading, this does not simply mean looking for a price target on each trade set-up. Whilst traditional trading allows you to do this, binary options removes stop and take profit levels but instead includes the new variable of time. Timing an exit after an entry signal is the single most important aspect of planning and takes a slightly different approach to the trade than planning the take profit levels in conventional trading.
Planning what to do when it all goes wrong
Binary options trading can go wrong but the great thing is the potential for a profitable outcome throughout the trade. With no stop losses, a big loser can turn in to an in the money trade before the expiry although many traders prefer to see their trading go to plan. By planning for an unfavourable turn in the markets, binary options traders can save themselves losses and the stress of maintaining a losing position. Many platforms offer early closure for a lower loss and, for those that prepare to spot the signs of an early reversal, early profits can also be taken. Alongside this one of the best ways to plan to safeguard a binary options trade is to prepare a hedge in the opposite direction should price turn against you. In doing this you will guarantee at least one winner and the losing position will be mitigated by this. This will not only protect your account but also allow the unsuccessful trades in your strategy to have a minimal impact.
