If you have been studying binary options online and plan to trade seriously, then you probably are aware that you need to have a trading method and money management rules. But you also need a trading plan. What is a trading plan? It is a comprehensive plan that not only includes your trading system and money management rules, but also other rules and details governing your trading. It provides a framework for the whole. What should your plan include? There are a number of components that are helpful, some of which are obvious, others which you may not have considered. Here is a quick overview of what you might want to include in yours.
1. Your trading method
This is the heart of your trading plan. It includes your entry and exit rules for placing trades, as well as any additional details regarding how you will handle your trades while you are in them. If you use technical analysis, your indicators are included in your trading method. If you use price action, your patterns are included here. Fundamental analysis traders will include any news reports they follow. For more information on each of these trading method types, click here.
2. Your money management rules
How much money will you invest on each of your trades, and how much does your account have to grow before you recalculate the amount based on the consistent percentage you set? Read more about this topic at this link.
3. What assets will you trade?
Binary options traders can trade currencies, stocks, indices, and commodities. Some brokers will allow you to choose from more than a hundred different underlying financial instruments. Which ones will you trade? Not sure where to start? Look here.
4. A trading checklist
When you place an actual trade, it can be helpful to have a checklist of actions to take before, during, and after a trade. That way you won’t forget to do something important, especially during fast trades or trades where your emotions become overly involved.
5. A trading schedule
When will you look at the charts? When will you place your actual trades? What timeframes are you going to trade on? Setting these objectives in your trading plan can help you avoid under-trading or over-trading. If you struggle to manage your time, you can externalize the process by coming up with a schedule, writing it down, and then allowing that written part of your trading plan to manage your time for you. All you have to do is follow your own rules.
6. How many trades will you place at once?
Will you make only one trade at a time, or will you allow yourself to be in several? What is the upper limit?
7. Where will you trade?
Will you trade at your home PC, or will you use your mobile device for trading? Will you trade while you’re at work? What about when you’re on pubic transportation or in waiting rooms or other situations where you could feasibly be trading, but might be distracted? Some people do fine trading in many different environments and situations, but others require a highly controlled environment to perform effectively. Wondering which binary options online brokers have mobile trading? Find out here
8. Will you be using trade alerts?
If so, how will you fit them into your trading plan? Will you rely on them, or will you simply use them to spot additional opportunities or help you to confirm other setups? What will you do if the trade alerts you are using stop working the way you expect them to?
9. What will you do if you experience a severe losing streak?
What will you do if despite following all the rules in your trading plan and method, you find yourself losing trade after trade? How will you handle losses you do expect and losses you don’t expect? When will you pull out of the market and take a break? What will your approach be in a situation where you don’t understand what’s going wrong? How will you avoid a panic? What steps will you take to resolve the problem and get back on your feet? How will you deal with failure, and turn it into success? These issues are unpleasant to consider, but it is much better to have a plan laid out in advance. That way you will not be entirely at the mercy of your emotions.
10. What are your trading goals?
Your trading plan is a great place to write down your trading goals in words. Why? Because there are times when you are going to be discouraged, and you may lose sight of your goals if you don’t have them in front of you in plain view. Writing down your trading goals helps to focus your mind and keep your eyes on your objective when your emotions are dragging you in different directions. Come up with a realistic goal, not just “I want to make billions of dollars.” Good examples include goals like, “I want to trade for a living,” or, “I want to make enough money to afford to do _____.” Your goal should be achievable, meaningful, and preferably not based on time constraints.
A trading plan is a great tool for organizing your time and keeping yourself focused when you are trading binary options online. It’s not enough to have a system and money management rules; you need a context for those rules and a schedule for your trading. If you find yourself deviating from your plan, it’s time to take a break and get yourself back on the road to success. It’s a good idea to look at your trading plan every single day.