5 Most common mistakes binary options traders do

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Avoid these 4 mistakes and trade binary options profitable!

Binary options trading can be easy, but so can be making mistakes. There are several mistakes made by most of the new traders. Amongst them are, for example, overtrading and failure to observe proper money management techniques (handling of the money on a trading account and choosing the right trade amounts).

Mistake no. 1: Overtrading

I consider overtrading probably the biggest and most common mistake often made not only by beginners but also by advanced traders . Overtrading in the case of binary options means one thing: Traders always want to earn as much money as possible and as quickly as possible and therefore, want to make as many trades as possible. Sometimes it may work out, but I tell you one thing: One day that man trips and loses money.

Always trade according to what you really see on the chart.

Not, what you think you see.

It is important to remember one thing. You don‘t ALWAYS to need use ALL of the signals to be successful on the market. The market is moving without you. And the price patterns are also created by it. So, even though sometimes you think you see a great price formations and the market simply has to turn around, you better think again.

It is always better to do less trades, because when it’s all over and the stock market is be closed, you will never regret the trades you didn’t take, but you certainly will regret the trades you took that were wrong.

Mistake no. 2: Bad money management

Even if you’ve already learned and are not doing crazy 50 trades a day, there is still one thing you have to realize. You should never trade with more than 5% (or, in extreme cases 10%) of your current account. Why? Because you would simply blow your account in just a few unsuccessfull trades. Remember that trading is a long term business. Even if your balance increases steadily by 5 % every day, you’re making way more money than you would with a savings account. And maybe even more than in your regular 9-5 job.

Mistake no. 3: Looking for a miracle

This is also an often touted topic. And I must admit, I was not different at the start of trading binary options. I’ve tried to find the best strategy there is and just download it. I searched for a variety of terms… “Binary options strategy, 15 minutes binary strategy,” and so on…

Looking back, it was stupid. I don‘t know what I was looking for. Probably for a strategy, that will instantly start making me some money. Some can be found on our website (strategy section) or eg. 5 minute strategies on best binary options strategy.com

Does it make sense to look up a binary options strategy? Well, kind of. For me, yes. For newcomers, it certainly makes sense! Somehow, it will make finding and devising trading systems a more pleasant experience. You will learn many things about the Meta Trader indicators, and even learn to estimate the market.

But remember – with any strategy there is, you always have to use common sense.

Mistake no. 4: Untested strategy

The fourth mistake is closely related to the previous point. I advised you to some extent, to look for the strategies and try them. But no strategy is bulletproof, and some are completely useless. Sometimes, this is not possible to determine by simply looking in the history, because the indicators can be repainted. Therefore, I 100% recommend trying all the strategies, with which you want to trade on a live account, on a demo account first. You can find demo accounts at these brokers: Brokers with the demo account.

Free demo account with IQ Option

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Author

More about the author Step

I’ve wanted to build a business of some kind and earn money since I was in middle school. I wasn’t very successful though until my senior year in highschool, when I finally started to think about doing online business. Nowadays I profitably trade binary options full-time and thus gladly share my experiences with you. More posts by this author

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Reference ID: #817293b0-7a7a-11ea-b80a-4915080c711b

The Top Mistake Binary Option Traders Make

Thinking of binary options as a ‘yes or no only’ proposition is the top mistake binary option traders make.

Binary options have become a hot new topic. Most often binary options are thought of as a simple yes or no contract. Either the market will or will not expire above or below a certain price at a certain time.

If you choose correctly, you get the maximum profit payout. If not, you lose your investment.

So if this is what a binary contract is, then what’s the mistake?

Let’s look at three examples:

1) If a trader trades call or put options, whether it be strangles, butterflies, verticals, diagonals, calendars, or just plain vanilla calls and puts, most would agree that it is unwise to hold the trade to expiration.

2) Likewise, in futures contracts, traders do not buy or sell the future and hold onto it until the last trade date, and rarely ever until the delivery date.

3) A stock trader does not buy a stock and wait to cash it in until a company does a stock buyback program.

Why do stock traders, future traders, and option traders close their positions early?

There are a multitude of reasons such as:

  • Limiting the loss
  • Locking in a profit
  • Account size and margin issues
  • To relieve capital and move on to the next trade
  • The list can go on and on.

So why wouldn’t a binary option trader consistently close trades before expiration?

1) They incorrectly believe that binaries where meant to be held until you can’t hold it any longer.

This is no more true for a binary than any other financial instrument, option, future, stock or otherwise. Maybe they believe this as they have only seen bucket shop binaries or someone told them this is how they work. In any case, they are misinformed.

2) They do not know that a binary option contract can be closed early, as they have not traded on Nadex.

To be fair, many people are not aware that you can close a binary trade early. Although this is not the case with binaries everywhere, on the Nadex exchange, all contracts can be closed before expiration to limit losses or lock in profits. This can help a trader trade more advanced strategies and help keep a profitable trade from becoming a losing trade.

3) They are greedy and want maximum profit.

Traders will buy at $10 and see a binary go up to $95 (maximum value $100) and they want that last $5. Maybe they will get it. If not, it turns around and goes back to $0 and they just gave up an $85 profit. And if they do get the final $5 in profit, do they consider the cost? They could have closed the trade and opened a couple of additional contracts with the freed up capital instead of waiting for that small $5 profit.

4) They have not been taught effective take profit methods.

For example, a binary contract on Nadex will be priced at $50 (give or take a few dollars in bid/ask spread) when its strike is at the same price as the underlying market. So a trader can buy a low risk binary for about $20 risk, targeting a price level and exit when it hits it for about $50 per binary option.

Or a trader may choose a higher probability binary option with a risk of $70, (think deep out of the money credit spreads) with a maximum profit of $30. If it moves up to $95, they take a $25 profit. They don’t risk the market retracing and losing the profit and possibly a lot more. Or, they exit the trade if the market hits the strike at $50 and take a small $20 loss on the trade.

5) They do not understand that a binary option is delta.

It is representative of probability at expiration. So, if you buy a binary at $70 time and time again and hold until expiration, you should make $30 70% of the time and lose $70 30% of the time, resulting in a break even (less fees) result. Basically, a trader who does this is an inexperienced trader and though they may have some good fortune, the probabilities will catch up and wipe out all the profits eventually.

Exit before Expiration

In summary, if you are trading binary options, learn to take profits before expiration. Know at what price you will be taking profit and at what price you will be exiting to limit losses, when applicable. Though all losses on binary option contracts are limited, there is no need to take the maximum loss on a binary option trade any more than there is on any regular option trade.

Don’t lose the common sense that you apply to other trading instruments when it comes to having an exit versus a buy and hope plan. And you will be on the road to trading binary options more effectively .

Four Common Mistakes Of Successful Binary Options Traders

First and foremost I want to point out that trading binary options is not a mistake. This does not exclude binary options traders from making mistakes. Especially successful binary options traders. There are numerous pitfalls and challenges to overcome, any of which could turn you from the path to success. This is a look into some of the common mistakes made by successful binary options traders.

The HMAS Success steams ahead no matter what hurdles it faces.

Choosing The Wrong Broker is a very common mistake. I know, I’ve done it. There are just so many to choose from and many of the ones you find are simply full of crap. There is so much glitz and glam about how binary trading is the wave of the future, easy to do and a sure path to making thousands of dollars or euros in the blink of an eye. Once you get past that the task only gets harder because you have to wade through the mire of regulated/unregulated along with the differences between different platforms and brokers. Just because a broker says “hey, we have standard digital binary options” doesn’t mean squat until you dig deeper and find out three things; what assets are actually traded on the platform, what expiries are available and if there is an early out feature.

Thinking that trading is easy is a common misconception and one thoroughly exploited by affiliate marketers and shady brokers. Trading is not easy, it takes time and knowledge to become successful. This does not mean it is impossible, if it were impossible no one would do it. In the same vein if it really were easy then everyone would do it and everyone’s not doing it right? So, trading is fun and can be fun but if that’s all you think you are going to have a really bad time. By bad time I mean lose all your money. A successful trader will know going in that trading is a challenge, or quickly realize that it is. This knowledge, self awareness, is one of the motivating forces that spur the successful trader to apply themselves to the task at hand.

Losing patience is a lesson taught to every trader. Too bad they don’t all learn it. Patience is that act of waiting for a set of predetermined conditions to happen. Sounds familiar right? That could be found word for word in an article on strategy right? “These are the predetermined conditions, now wait for them to happen”. Losing patience means becoming angry, unnerved, anxious or hasty of decision. It means not waiting for the right conditions and allowing emotion to dictate your actions. It means making bad trades because you don’t wait for the signals to come, in effect when you lose patience you lose money and having patience means having money.

Getting discouraged is also very easy to do. Trading is hard and you will lose money. For some more than for others but the fact remains, you will lose money. Losing money leads to frustration and even more losses if left unchecked. The fact also remains that no matter how much you lose, you can come back, with perseverance. Regardless, successful traders may get discouraged but they do not quit, they may take a break to regroup or save another stake but they do not quit. Quitting means the market beat you, it won, if you quit you can never be a winner.

Quitting Is Not An Option

I’ve been trading a long time, a lot of different types of instruments, even the option to quit. It is there every day, at every juncture, you could just throw up your hands and give it up. Successful traders feel this feeling the same as unsuccessful ones, they just handle it differently, they don’t quit because it is not an option for them. There are many mistakes you could make but so long as you learn from it you win in the end. It is not a mistake to choose the wrong broker if you learn from it and then pick the right one. It is not a mistake if you start out thinking trading is going to be easy and then endeavor to master it when you learn otherwise. It is not a mistake to get discouraged if you lift up your head and march back into the fray. It is not a mistake to quit for a time, if you come back and kick the markets ass. The only mistake is to let the market beat you because if you do that you will never be a winner. Successful traders make all the mistakes that unsuccessful ones do, they just bounce back in a different way.

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  • Binomo
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