Putting Together Your Binary Options Trading Plan

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Putting Together Your Binary Options Trading Plan

What is one of the first things that you need to do when setting up a business? Well, you construct a business plan. Prior to starting to trade binary options, you will actually find it quite useful to create a trading plan for yourself.

This is a step that many traders skip, choosing instead to dive headfirst into the action. While putting together your trading plan may be a little time consuming and yes, even tiresome, it is nonetheless quite necessary. Consider this plan as your road map for your binary options trading career.

Instead of feeling lost and bewildered, you will be able to follow a well-thought out and detailed design. Here are some of the tips that you can follow for setting such a thing up:

Follow Your Nature

Binary options trading, as with any form of investment, entails a certain amount of risk. Still, there are traders that choose to exponentially increase the level of risk involved. There are several ways to do this. For instance, the traders may choose to go against the trend or may require their trades to satisfy a greater number of conditions. The advantage of such trades that if you are right regarding your prediction, you stand to make a greater amount of money. At the same time, due to the complexity of the trades, you are more likely to lose the money.

In order to decide whether you are going to play it safe or risky, you should consider who you are as a trader.

It can be unnerving for someone to go against their nature, even in a financial situation. It is best to stick with the route that you are comfortable with, even if you feel as though you will make less money as a result.

Ensure Diversity with Assets

As you aware, deciding on the assets that you will trade with is one of the most significant decisions you will make. If you are just starting out, you don’t have to choose too many, although a variety is good. Any experienced trader will implore you to stick with what you are well versed with or at the very least, what you like. This way, you will not have to force yourself to be interested in your assets.

There is one more thing to think about, however, and this is diversity. In the financial world, diversity is a tool that is used to make sure that you don’t lose all of the money that you have invested in one fell swoop. You can ensure this by choosing assets that often behave in an opposing manner given any market situation. Let’s take currency and gold, for example. Whenever currency loses its value, it is almost automatic for gold to increase in price. If you invest in both these, you will stand to gain the money from one asset that you have lost with another.

Create Records of Trades

There is something to be learned from every trade that you place, regardless of whether you win or lose. This is why you should make a habit of noting down every trade that you make. Include all of the details included in the trade as well as your reasoning behind your decision.

This should be done because it all adds up. You will be able to look back on this record and be able to see if you are making any recurring mistakes. Or, perhaps you have come across a strategy that is performing particularly well within certain conditions.

The last thing to keep in mind is that you should revise your trading plan ever so often. One plan is not going to hold up for long and you will need to make adjustments and improvement. This, in conclusion, is what you need for putting together your trading plan.

Do You Have a Trading Plan for 60 Second Options?

Do You Have a Trading Plan for 60 Second Options?

Having a trading plan is important no matter how you trade, but for a 60-second trader, a plan is even more critical. Why? Because there is a lot to think about and deal with when you trade, and when you are trading fast, you have even less time to get it all done. For a beginning trader in particular, it can be easy to forget to take important steps, which can cost you money. Even if you have been trading for years though, a plan can be helpful, because it can keep you on track and oriented. Even veteran traders can make mistakes, and why make mistakes you can avoid? Learn about 5 of them here.

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Here are some of the elements which should be included in your 60-second binary option trading plan:

A trading method or system.

This is one of the most important elements in any trading plan. This is a set of rules for entering and exiting binary options trades. It tells you what to look for in terms of indicators or events, and what constitutes a good setup. It also tells you when you should consider closing out early or doubling up or rolling over. It is helpful to have this written down. Again, when you are trading 60-second binary options, things go fast. You want to have your trade rules in front of you so that you can immediately spot any changes that might prompt you to take action during a trade.

Money management rules.

How much of your account will you risk on each of your trades, as a percentage? How will you calculate that percentage?

When will you look at the charts?

As a 60-second trader, even if you are using trade alerts (click here to learn more), you are probably planning on spending a fair amount of time sitting in front of your computer looking for great trading opportunities. It’s tough to manage 60-second trades from a distance. If you do use alerts, odds are you’ll be using auto-trading to help you execute trades, since the opportunity may be gone by the time you get to your computer to manage a trade.

Most traders who work with very short expiry times like this will plan to spend a couple hours a day in front of their computers, looking for entries and actively trading. You will need to figure out the best days and times based on your schedule and the assets you are going to be trading. Make sure to not only plan times to trade, but also time off. You need to take breaks now and again, and you should not be spending all your time 24/7 in front of your monitor. Also in the scheduling arena is the question of how many trades you will be in at a time. Many people can only handle one. As a 60-second trader, you probably can handle several at most.

Assets to trade

You may trade a lot of different assets or only one or two. It is all up to you based on your trading method and your schedule.

Checklist

A plan may sound a bit like a checklist, and in a sense it is one, but it is a broad checklist, and you also are going to want one for trading in real time. This checklist will include elements like this:

Are my entry criteria all met?

Is the trade located in a sound context?

Am I already in another trade?

Did I correctly calculate my investment amount?

And so on. The idea is that before a trade, during a trade, and after a trade, you have a set of instructions to guide you. That way even in the thick of the action or while you are trying to handle difficult emotions, you can keep on track. You might even have checklist items that help keep you focused. “Am I in the right frame of mind for trading?” might be one question you ask yourself. If you are not, you might defer trading until later. You can also have checklist items for while you are in a trade. One example might be, “Do I have reason to believe that rolling over in this trade will make me more money?” After a trade, you can also have a checklist with questions like, “Did I follow all my trade rules correctly? If not, what did I do wrong?”

Plans to develop self discipline.

As a binary options trader, you are relying on your own self-discipline to keep you profitable. All of these trading plan elements are useless if you don’t pay attention to them, and no checklist in the world will keep you focused without any follow-through. So part of your trading plan should include strategies to hone your own discipline. This is a different process for every person.

For some traders, following a plan can in itself be an exercise for improvement. For others, it may help to make other plans, like deciding to get up by a certain time each day, eat well, or exercise regularly. For traders who have a tendency to overwork themselves, discipline can even mean making time regularly for leisure and socializing. However you choose to approach this, it is key to remember that you cannot succeed at trading unless you are able to develop this aspect of your personality. The good news is that nobody is born with self discipline, but anybody can develop it with enough determination.

Why are you trading?

Answering this question should comprise one last aspect of your trading plan. You need to be in touch with your personal motivations and goals. Some goals are reasonable an realistic, while others are not. Unrealistic goals are not necessarily unachievable, but they are the types of goals which drive reckless trading decisions. A good goal might be, “I intend to become a profitable trader who can achieve repeatable, consistent results over a long time frame,” or “I want to trade 60-second options for a living.”

An unrealistic goal might be, “I want to make $500 an hour trading binary options.” It is not impossible to do, but it promotes foolish decision-making. There is nowhere in the world of binary options where this is more common than with 60-second options, unfortunately. The idea of making a huge amount of money within a one-minute time frame is so tempting that many traders are drawn in by slogans like, “Make $500 an hour,” or, “Make $100 in just one minute!”

This is not what trading is about. If you attempt to set up a profit quota like this, you will make foolish trades out of desperation in order to meet your hourly goal. Instead, why not strive to meet the goal of making regular, repeatable profits? You could also set goals like, “I want to become more disciplined through my trading and become better at following the rules I create for myself.” Do that, and the money will take care of itself. Monetary gain is the inevitable result of making sound trading decisions which lead to profit.

After putting together a trading plan but before jumping in check this out to get a few more tips.

10 Steps to Building a Winning Trading Plan

There is an old expression in business that, if you fail to plan, you plan to fail. It may sound glib, but people that are serious about being successful, including traders, should follow those words as if they are written in stone. Ask any trader who makes money on a consistent basis and they will probably tell you that you have two choices: 1) methodically follow a written plan or 2) fail.

If you already have a written trading or investment plan, congratulations, you are in the minority. It takes time, effort, and research to develop an approach or methodology that works in financial markets. While there are never any guarantees of success, you have eliminated one major roadblock by creating a detailed trading plan.

Key Takeaways

  • Having a plan is essential for achieving trading success.
  • A trading plan should be written in stone, but is subject to reevaluation and can be adjusted along with changing market conditions.
  • A solid trading plan considers the trader’s personal style and goals.
  • Knowing when to exit a trade is just as important as knowing when to enter the position.
  • Stop-loss prices and profit targets should be added to the trading plan to identify specific exit points for each trade.

If your plan uses flawed techniques or lacks preparation, your success won’t come immediately, but at least you are in a position to chart and modify your course. By documenting the process, you learn what works and how to avoid the costly mistakes that newbie traders sometimes face. Whether or not you have a plan now, here are some ideas to help with the process.

Disaster Avoidance 101

Trading is a business, so you have to treat it as such if you want to succeed. Reading a few books, buying a charting program, opening a brokerage account, and starting to trade with real money is not a business plan—it is more like a recipe for disaster.

A plan should be written—with clear signals that are not subject to change—while you are trading, but subject to reevaluation when the markets are closed. The plan can change with market conditions and might see adjustments as the trader’s skill level improves. Each trader should write their own plan, taking into account personal trading styles and goals. Using someone else’s plan does not reflect your trading characteristics.

Investing After the Golden Age

Building the Perfect Master Plan

No two trading plans are the same because no two traders are exactly alike. Each approach will reflect important factors like trading style as well as risk tolerance. What are the other essential components of a solid trading plan? Here are 10 that every plan should include:

1. Skill Assessment

Are you ready to trade? Have you tested your system by paper trading it, and do you have confidence that it will work in a live trading environment? Can you follow your signals without hesitation? Trading the markets is a battle of give and take. The real pros are prepared and take profits from the rest of the crowd who, lacking a plan, generally give money away after costly mistakes.

2. Mental Preparation

How do you feel? Did you get enough sleep? Do you feel up to the challenge ahead? If you are not emotionally and psychologically ready to do battle in the market, take the day off—otherwise, you risk losing your shirt. This is almost guaranteed to happen if you are angry, preoccupied, or otherwise distracted from the task at hand.

Many traders have a market mantra they repeat before the day begins to get them ready. Create one that puts you in the trading zone. Additionally, your trading area should be free of distractions. Remember, this is a business and distractions can be costly.

3. Set Risk Level

How much of your portfolio should you risk on one trade? This will depend on your trading style and tolerance for risk. The amount of risk can vary, but should probably range from around 1% to 5% of your portfolio on a given trading day. That means if you lose that amount at any point in the day, you get out of the market and stay out. It’s better to take a break, and then fight another day, if things aren’t going your way.

4. Set Goals

Before you enter a trade, set realistic profit targets and risk/reward ratios. What is the minimum risk/reward you will accept? Many traders will not take a trade unless the potential profit is at least three times greater than the risk. For example, if your stop loss is $1 per share, your goal should be a $3 per share in profit. Set weekly, monthly, and annual profit goals in dollars or as a percentage of your portfolio, and reassess them regularly.

5. Do Your Homework

Before the market opens, do you check what is going on around the world? Are overseas markets up or down? Are S&P 500 index futures up or down in pre-market? Index futures are a good way of gauging the mood before the market opens because futures contracts trade day and night.

What are the economic or earnings data that are due out and when? Post a list on the wall in front of you and decide whether you want to trade ahead of an important report. For most traders, it is better to wait until the report is released rather than taking unnecessary risks associated with trading during the volatile reactions to reports. Pros trade based on probabilities. They don’t gamble. Trading ahead of an important report is often a gamble because it is impossible to know how markets will react.

6. Trade Preparation

Whatever trading system and program you use, label major and minor support and resistance levels on the charts, set alerts for entry and exit signals and make sure all signals can be easily seen or detected with a clear visual or auditory signal.

7. Set Exit Rules

Most traders make the mistake of concentrating most of their efforts on looking for buy signals, but pay very little attention to when and where to exit. Many traders cannot sell if they are down because they don’t want to take a loss. Get over it, learn to accept losses, or you will not make it as a trader. If your stop gets hit, it means you were wrong. Don’t take it personally. Professional traders lose more trades than they win, but by managing money and limiting losses, they still make profits.

Before you enter a trade, you should know your exits. There are at least two possible exits for every trade. First, what is your stop loss if the trade goes against you? It must be written down. Mental stops don’t count. Second, each trade should have a profit target. Once you get there, sell a portion of your position and you can move your stop loss on the rest of your position to the breakeven point if you wish.

8. Set Entry Rules

This comes after the tips for exit rules for a reason: Exits are far more important than entries. A typical entry rule could be worded like this: “If signal A fires and there is a minimum target at least three times as great as my stop loss and we are at support, then buy X contracts or shares here.”

Your system should be complicated enough to be effective, but simple enough to facilitate snap decisions. If you have 20 conditions that must be met and many are subjective, you will find it difficult (if not impossible) to actually make trades. In fact, computers often make better traders than people, which may explain why nearly 50% of all trades that now occur on the New York Stock Exchange are generated by computer programs.

Computers don’t have to think or feel good to make a trade. If conditions are met, they enter. When the trade goes the wrong way or hits a profit target, they exit. They don’t get angry at the market or feel invincible after making a few good trades. Each decision is based on probabilities, not emotion.

9. Keep Excellent Records

Many experienced and successful traders are also excellent at keeping records. If they win a trade, they want to know exactly why and how. More importantly, they want to know the same when they lose, so they don’t repeat unnecessary mistakes. Write down details such as targets, the entry and exit of each trade, the time, support and resistance levels, daily opening range, market open and close for the day, and record comments about why you made the trade as well as the lessons learned.

You should also save your trading records so that you can go back and analyze the profit or loss for a particular system, drawdowns (which are amounts lost per trade using a trading system), average time per trade (which is necessary to calculate trade efficiency), and other important factors. Also, compare these factors to a buy-and-hold strategy. Remember, this is a business and you are the accountant. You want your business to be as successful and profitable as possible.

The percentage of day traders that quit within two years, according to a 2020 paper titled “Do Day Traders Rationally Learn About Their Abilities” by Barber, Lee, Liu, and Odean.

10. Analyze Performance

After each trading day, adding up the profit or loss is secondary to knowing the why and how. Write down your conclusions in your trading journal so you can reference them later. Remember, there will always be losing trades. What you want is a trading plan that wins over the longer term.

The Bottom Line

Successful practice trading does not guarantee that you will find success when you begin trading real money. That’s when emotions come into play. But successful practice trading does give the trader confidence in the system they are using, if the system is generating positive results in a practice environment. Deciding on a system is less important than gaining enough skill to make trades without second-guessing or doubting the decision. Confidence is key.

There is no way to guarantee a trade will make money. The trader’s chances are based on their skill and system of winning and losing. There is no such thing as winning without losing. Professional traders know before they enter a trade that the odds are in their favor or they wouldn’t be there. By letting their profits ride and cutting losses short, a trader may lose some battles, but they will win the war. Most traders and investors do the opposite, which is why they don’t consistently make money.

Traders who win consistently treat trading as a business. While there is no guarantee that you will make money, having a plan is crucial if you want to be consistently successful and survive in the trading game.

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