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German Investors

Before beginning any new undertaking it’s always wise to have a guiding plan in place with your goals and milestones. This is crucial in binary options trading as it’s the difference between securing profits or enduring substantial losses. A sound trading plan consists of many factors including technical strategy, risk management and trading psychology.

  1. Research your asset of choice in full detail and only trade securities that you find exciting. It’s important to focus on one market and explore it from all angles before venturing into other markets. One of the biggest mistakes that traders make is spreading themselves too thin thinking that having their hands in multiple markets will increase their profit potential. In reality, lack of focus potentiates the possibility of exorbitant losses.

  2. Select your preferred trading analysis method, which can include technical, fundamental or sentiment analysis. Technical analysis makes use of charts and historical data to predict future price trends. Common technical analysis indicators include moving averages, Fibonacci retracement, moving average convergence-divergence (MACD) and Bollinger Bands. Oscillators consist of the relative strength index (RSI), stochastics, ROC and MFI. Fundamental analysis references microeconomic and macroeconomic themes, such as major news events and report releases that can be found in the economic calendar. Sentiment analysis, on the other hand, indicates the percentage of how many trades or traders have taken a specific position on a certain underlying asset and illustrates a general trend in the market.

  3. Risk management consists of money management, the implementation of stop-loss orders and setting risk to rewards ratios. For instance, it’s important to not invest more than 5% of your capital on a single trade. You also want to ensure that your risk to reward ratio is at a consistent 1:1 break. Tight stop losses make sure that losses are well contained before becoming significant. While there is a risk associated with a stop order on long positions applied at levels well below those specified if the security gaps drop, the benefits of such orders outweigh this risk.

  4. Manage your trading psychology. Disciplining your emotions when trading is fundamental to long-term success. Anger, greed, anxiety, over-confidence and indecisiveness are all setbacks to generating the maximum profits possible. A natural tendency for traders facing major losses is to automatically re-enter a trade at double the initial investment in the hopes of redeeming their failure. Known as revenge trading, it’s when traders become emotionally charged and overly aggressive following out of the money positions. Aim to maintain your composure at all times and stay calm under all circumstances. Prepare yourself well before a trade and get your attitude in check for the ebbs and waves of trading.

Any investment opportunity comes with a significant measure of risk, as such it’s essential to stick to tried and tested methods. If a certain strategy works for you, don’t shake up your formula too many times and keep your eye on the prize.