Those who spend a long time trading financial market products such as binary options will inevitably come across contributions to trading psychology. Trading psychology is a very interesting and important field because emotions play a big role in making decisions. For this reason, the Behavioral Finance department has developed in recent years, in which several studies and books on this subject can be found. Some subject areas deal with the herd instinct, for example, others are more trading-related and deal with questions on these subjects; how do you get the fear of losses under control or how do you learn to be disciplined.
To deal with trading psychology means to question yourself. Therefore, depending on the character type, it is either easy or not. A strong ego can get in your way. Because an "Egomane" can only admit to being very wrong. This can be an advantage in some situations, but in trading it leads to ruin in most cases. And this is exactly where the advantage of binary options could lie. After deciding to buy a call or put option, the trader has no choice but to accept the outcome of the trade. With a few exceptions, he no longer has the opportunity to intervene in the trade.
Not the product is the gambler, but the person
But there are also other pitfalls for the trader of binary options. The simple handling in particular can lead to the dealer becoming a gambler. As soon as he has made a mistake in a trade, he has the feeling that he has to recover the lost bet on bending and breaking. A fatal mistake that manifests itself more in the feeling with the number of trades lost. This is followed by emotion-laden decisions that have nothing to do with a well-founded analysis. The dealer can only lose.
It is not so easy to get your emotions under control, that's for sure. As a trader, you have to deal with your strengths and weaknesses and adjust your trading strategy accordingly. For example, if you notice that you fall too much into the gambler pattern described above in 60-second trading, then ultra-short-term trading is not for you. Who cares, there are enough other options. The terms are particularly variable with binary options.
How do you learn to be disciplined?
It is important to understand that humans are creatures of habit. This particularly affects the emotional side, which has been strongly shaped by development. These habitual structures are particularly difficult to break. By keeping a trading diary, the trader can learn discipline. We have already presented some strategies, but in themselves many of these strategies for trading binary options are simple. The difficult thing is to consistently implement them. This requires discipline.
There are a few approaches to teaching yourself discipline. One of the best known is to keep a meticulous diary of the trades. Of course, this does not necessarily have to be a written diary, but can also take the form of an Excel spreadsheet. In this way, statistical evaluations can be made even later. What data is important now? That depends on the strategy, but in principle the traded underlying, the position size, the time and the profit / loss should always be entered. It is also useful to note comments on the individual trades. Why did you choose the direction, what was the goal?
Time is especially important in short-term trading. During the course of his apprenticeship, the trader notes which trading hours were profitable and which should not be traded. The comments ensure that the trader deliberately deals with his decisions.
After previous analysis, we have selected a call option on the DAX as an example with a term until close of trading. We now want to trade the option through the broker 24option.com and use $ 500 for it. If we are correct, our return is 72%, if we are wrong we lose our stake.
The whole thing looks like this in our trading diary
For the sake of simplification for the example the strategy is kept simple. You could certainly enter other data such as total equity or relative risk management. There are no limits to the evaluation. Via a subsequently created equity curve, the trader can get a quick overview of whether his strategy is promising over a period of time or not.
Conclusion For every prospective trader of binary options, it is very important to deal with your own personality. The trade has a lot to do with emotional decisions. That is also the reason why it is said in the specialist media that one behaves irrationally in certain situations. Even if you perceive it differently.
A tip on the side: The difficult thing about being disciplined is often the fact that the trader does not fully believe in the trading strategy that he is pursuing. That makes him insecure. Conversely, this means that a strategy must first prove itself before the dealer is even ready to implement it consistently. It is a lengthy process that also requires discipline. The evaluation based on tables can help here.