Binary options are advertised on the one hand as financial instruments, on the other hand criticized as gambling. Indeed, their "All or Nothing" payout structure is similar to a sports bet.
Nevertheless, binary options trading has a decisive advantage over sports betting. Even if the probability of a sports team winning is very high, the factors for analyzing this probability are limited. It is different when trading instruments on capital market-based products such as shares or currencies, also known as derivatives, which also include binary options.
It is not for nothing that banks and so-called hedge funds abound in the field of derivatives. But you have never heard of banks concluding sports bets. The crux of the whole thing is the following. Just like with sports betting, you have to deal with the markets in order to take the right direction.
The analysis of the market and the development of trading rules are an important part of any professional speculation. However, since people are often expected to recklessly press the Call or Put button, trading is often referred to as gambling. Our tip: Do it differently:
Which rules should be observed?
There are existential rules that are always observed by professional and traders. These can be divided as follows:
- analysis method or technology
- money and risk management
- trading psychology
- analysis method or - Technology
Every good trader has tried different analysis methods in his career. This process is often necessary because this is the only way for the retailer to find out which method suits him best, and beginners often make the mistake (although mistake is not necessarily the right expression, because it is from this that you learn the right one Method to recognize) to alternate between several techniques. The idea of the first two to three trades being a direct hit is the real mistake. But more on that in the section Trading Psychology.
In the analysis method, the trader has to choose between several options. Most of the time there is a choice between the technical analysis and the fundamental analysis.
The trader after the technical analysis only looks at the pure price chart and tries to find certain patterns that we have already presented. The trader after the fundamental analysis takes advantage of economic events and developments.
It should be noted that the technical analysis is more suitable for short-term trading in binary options, since the analysis can be done visually here, while the fundamental analysis involves the evaluation of an almost infinite flood of information.
The first step for a trader is therefore always to concentrate on a single analysis method. "First" should be emphasized, because over time the dealer often develops a feeling for relevant events and combines them, often unconsciously with the technical analysis. This is the case if the dealer can fall back on several years of experience. He knows the market, so to speak.
Depending on the analysis method, it can of course be broken down further. Either you follow the principle "Keep it Simple and Smart" or you just get along better with many confirming indicators. However, the rule remains the same: "Define your preferences and stick to them"
Money and risk management
"Money and risk management" often sounds very complicated to the layperson. But if you find out, there is nothing complex to marvel at. The two technical terms relating to trading can be summarized in two clear sentences. Money management is the decision about the amount of the stake, risk management is the decision about the entry of a position and the maximum accepted loss. Strictly speaking, the two flow into one another.
For example, within the scope of money management, we can decide that we only use a certain percentage (e.g. 5%) of our capital so that we do not completely use it up in the event of loss. Of course, this requires a certain planning, which is connected with the rule that the capital has to be a lot higher than the actual stake / trade. In risk management, the amount of the largest possible accepted loss is determined. These are defined via the stop loss, and this is where the advantage of binary options comes to the fore. The trader does not have to calculate the risk himself using formulas, but knows from the start how much he loses through a trade. He just has to decide whether to accept it or not and that depends on his money management, i.e. available capital.
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A trading underestimation often underestimated Rule says: "Discipline is the guarantee of success". Failure as a trader is almost inevitable when there is an undisciplined switch between the analysis methods and lax money and risk management.
Trading psychology often hides the analysis of the self in relation to the trade. How do I behave in certain situations? What is my risk awareness? How can I avoid fear of loss? All these questions can only be solved if you can admit that you are wrong. The biggest problem is the ego. This always leads us to constantly try other analysis methods, because after one or two unsuccessful trades, we don't blame ourselves for it, but rather the bad trading technique. The third and fourth trade would have been a direct hit.
Regardless of the broker or product, binary options traders must also adhere to certain rules in order to be able to trade successfully. The way there depends on the discipline of the individual retailer. That is why the psychological rules in trading are the most important, because they determine the implementation of the other rules.
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