Top Five Reasons Binary Options Traders Fail
There are numerous different reasons binary options online traders might fail, and the cold hard fact of reality is that most binary options online traders will fail. But a few will go on to success, and that is because they manage to avoid the biggest pitfalls.
Here are the top five reasons that traders typically blow their accounts.
1. Failure to research, train, and test
2. Lack of capital
3. Bad money management
4. No discipline
5. Ignoring context
1.Failure to research, train, and test
This is probably the single biggest reason that binary options online traders fail, especially new ones. Many people learn this lesson the hard way. They get excited about trading binary options online, and think, “It’s as easy as 1-2-3; I open an account, deposit funds, and start trading. I can become an investor in a matter of minutes!” While you can become an investor in a matter of minutes, you cannot become a good one.
To get good at investing, you absolutely have to take some time to research first, train up your skills, and test whatever trading method you’re going to use. Don’t have a trading method yet? That’s a prerequisite to successful trading. If you try trading without one, you might have some good luck that keeps you going for a while (probably not though), but eventually you’ll fail, and when you do, you’ll lose the money you could have been building off of with a profitable trading system. Use to learn how to trade.
So take some time to learn how to trade first, and then open your account with your new broker and start using your skills to make money. It may not sound like a lot of fun, but if you cannot take the time to learn, then trading probably isn’t the right field for you in the long run. Training up is also an ongoing process. It is not something where you get to a point where you know as much as you can know, and then you don’t have to learn anymore. The market keeps changing, and you have to grow with it.
2. Lack of capital
One of the ways in which binary options online brokers promote their services is by making trading accessible to people who do not have much money to trade. You can open an account at the majority of binary options online websites with just $200-$250. There are more benefits if you start out with $500 or $1,000 in most cases, but the reality is, even that amount of money isn’t very much.
What are the dangers of trading with a small account? Well, the main one is that you will likely become impatient. It is really tough to convince yourself to follow good money management rules (see below) when you are making money really, really slowly. If you are investing just 2.5% of a $250 account, how much is that on each of your trades? It’s just a little more than $6.00. You are not going to be getting anywhere fast that way. While that means you won’t lose all your money fast, it also means it will take you ages to profit in any substantial way.
It raises another problem too, which is that most websites are not going to let you trade that little, at least on anything other than 60-second trades, which are not the best for beginners (). If you have a minimum investment amount of $25, you should really have an account with at least $500-$1,000 in it. So think about waiting a little longer to deposit a little more. That way you won’t be going as slowly (but still pretty slowly). Very few traders will be successful starting out this way, but if you can handle your own impatience, you might be one of those few that makes it.
3. Bad money management
This is something you should now have some understanding of just from the discussion above. There are two main ways to screw up your money management principles. The first mistake is to try to invest too much on each of your trades as a percentage of your account. 2.5% is an optimum amount. 5% is acceptable if you really cannot trade less, but that is around the top end. Even 10% is arguably too much. All it takes is 10 losses in a row to blow an account when you risk 10% on each trade, and that can happen faster than you think.
The second way to screw up your money management is to risk inconsistent amounts of money on your trades. You might think it makes sense to risk more on trades which look better and less on trades which do not look so good, but there are a couple of problems with this way of looking at your trading. One problem is that this kind of behavior can quickly become random. And before you know it, you will start throwing 50% of your account at a particular trade because it “looks good,” and because you are desperate to win back money.
The other problem is that you should only be taking the very best trade set ups, so they should all be roughly equal. If you are taking set ups which do not look as good, that means you are not following your method with discipline, and are already making the first mistake I talked about.
4. No discipline
Discipline is the most essential ingredient in trading, and it is not something which you can find on a website, download, or buy from someone else. It is more valuable than any trading system, trade alerts, or product to help you win money. Without it, no trading system will be profitable, and money management would be impossible. And it is also one of the toughest skills in the world to develop.
It has been said that there is no “holy grail” of trading, and while on one level that is true, on another, it is not. The holy grail of trading is you and the time and energy you invest in becoming a more honest, more disciplined trader. It is that honesty and discipline that allows you to apply your trading rules and money management principles consistently and with success. Keep your character traits in check with
5. Ignoring Context
This is not the most obvious one out there. There are other good ones I could have talked about like lack of experience or community support, but since this is so often overlooked, I thought I would discuss it briefly. Context is the picture of what is going on around your trade setup. It includes information like:
• What kind of market conditions are taking place? Is the market smooth, choppy? Is it trending, ranging? Where is my trade placed with reference to the nearby “geography”? Am I going to be trading with the trend or against it?
• Is there strong support or resistance nearby? Where is a trade likely to stall? If I enter, am I entering before or after the break of that support or resistance? Should I be planning to close early?
• Are any news reports coming out? Are there any major events going on right now? Click here to learn more about timing trades.
• How do things look on a larger timeframe?
While this sort of analysis may seem secondary, it can be as crucial as the setup itself which would trigger a trade. A good setup in a bad place is not necessarily a good setup at all. And even a mediocre setup in a great place could be more reliable. The only way to find out the importance of context for your trades is test, which brings us back around to the first point which I talked about. So as you can see, it all wraps back around. All five of these principles are strongly connected, and while we have been discussing mistakes, you should now see the relevant good decisions you can make which will help you avoid every pitfall.
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