Binary options trading can be so exciting to new traders that they will search for reasons to place a trade. Sure, that might sound rational off the top, but in reality, good trade setups that are worth taking generally have a way of standing out. As long as you’re following your method, paying attention, and properly doing research or setting up your indicators, you will usually spot “A trades” without much thought. If you find yourself hunting for reasons or justifications to place trades, you may be overtrading.
How Many Trades a Day is Too Many?
It’s very common for newbie traders to think that overtrading is something which is measured in terms of volume or frequency. This is not really the heart of the matter however, since volume and frequency are both very subjective, and depend on your trading style and your methodology. Some trading methods will produce a couple good trades a month, while others may present a number of good trades a day. Some methods will work very well on one and only one asset, while being somewhat less effective on others. Other methods will be pretty effective across a broader class of assets.
You shouldn’t necessarily gauge the usefulness of your trading system by how many trades a day/week/month that system generates. Yes, it is great to be able to place a lot of trades. But they really have to be good trades. A high win percentage is more important. What’s also more important is that your average win outweighs your average loss. There’s no one magical statistic that will determine success. You actually need a combination of good statistics to have a profitable system.
Is there anything wrong with placing a dozen trades a day? Not if your methodology honestly generates that many great trade set-ups, and not if you truly are not overwhelmed with that kind of trading. Is it a problem if you’re holding multiple positions at once? Again, not if it suits your trading personality and your trading method tells you those are all great trades. And of course, your bankroll needs to be large enough that you can manage those multiple trades. Check out these trading rules
for more guidance on making good decisions while trading.
With that in mind, there is a tendency for newbies to overexert themselves by placing too many trades. The reason the trades are too many aren’t that lots of trades are bad as a general proposition. It is a problem when those trades aren’t all “A trades,” and when they are more than the trader can keep up with psychologically in such a brief time period.
Examples of Over-trading
- Josh is brand new to binary options online trading, and is eager to make bank. As a result, he is placing as many 60 Seconds trades as he can. When he opens longer term trades, he opens more than one at a time, even if the set-ups do not look that good. This is an example of over-trading because of impatience. Impatience is not a justification for opening a trade. Emotional trading can wreak havoc on your bankroll. Click here to learn how to get paid every 60 seconds
- Carrie is trading binary options online using a method which gives her access to many good trade-ups per day. She tries to take as many set-ups as she can within her money management rules, but she finds it emotionally overwhelming to place so many trades. She trades day and night and never takes a break. This is over-trading due to over commitment. Here, Carrie’s trades make sense as they relate to her trading method, but she is over-working herself and risking burnout. This is workaholic behavior and will probably lead to her washing out of the market. Carrie should have checked out this page http://keyoption.org/guide/balancing-options-trading-with-life/ before becoming a “tradeaholic”.
- Dan trades binary options online with a trading method which presents him with a couple of “A trades” each week. Those are trades where everything is lined up perfectly with his indicators and context is good. It also presents him with a number of “B trades.” Those set-ups are not entirely bad, but they have something wrong with them—maybe the context is not so good, or one of the indicators is slightly off. Dan tries to talk himself into taking these “B trades,” coming up with justifications for why he should enter, even though he knows that doing so is breaking with his self discipline. Gradually this takes a toll on his trading in the form of monetary losses. He also loses sight of what makes his method work in the first place. Don’t compromise your character traits like Dan did. Stay true to yourself.
Here, on the other hand, is an example of someone who may appear to be overtrading, but really is not:
- Betty has been trading binary options online for a year, and has decided to do some faster trades now that she feels comfortable. She discovers she has an easier time psychologically with trades she is not in for very long, and has no problem managing a dozen trades a day. Her methodology tells her these are all “A trades.” Betty is profitable and enjoys her trading. Click here for the Top Ten Benefits of Trading Binary Options.
The Danger of Undertrading
Just as there is such a thing as over-trading, there is also such a thing as under-trading. Impatience typically drives traders to enter into more trades than they can handle or should be in. But there are also emotions which can drive under-trading, like low self esteem, falling confidence, and skittishness from past losses. If you have had a number of bad trades, even if they are statistically predicted by your backtesting, you may start to feel unsure of yourself and distrustful of your method, which may cause you to skip good trade set-ups or close early in trades you should stay in. What is backtesting? Find out here.
Under-trading may not sound as damaging as over-trading, and you will not hear as many discussions about it. It can be every bit as detrimental. What happens when you start under-trading is that your method becomes less effective. Since you skip out on trades you miss opportunities to profit. Don’t miss profitable opporunities – learn how much trading is too much.