By: Julia Aidan
Submitted: 2010-07-17 12:20:47 | Word Count: 685
Binary options trading can be very lucrative. With returns over 80% in an hour, you can make money very quickly. However, that fast movement of money is a double-edged sword. You might also lose money in a hurry if you don't heed a few basic concepts. If you follow these three keys, you will greatly improve your chances of making money.
Do Not Over-trade
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Warren Buffett once said, "There are no called strikes in the market." What The Oracle of Omaha meant by that was it's fine to pass on as many trades as you wish. You don't create loss by skipping over potential trades. This particularly holds true with binary options, since new options with new strike prices and new expirations are being regularly issued.
Becoming too active or jumping the gun will burn you when trading binaries. Relax and do your analysis. Do not trade on gut feelings or hot tips. If you pass on a profitable trade, don't sweat it because there are constantly fresh chances opening up. Don't feel rushed to get in on a trade just because think it will begin to go up. If you ever feel like you're being too active, take a step back and call it a day. There will be dozens of new opportunities later, and you'll have a significantly clearer head to see them with.
Regulate Your Position Sizing
The good part about binary options trading is that you can earn big gains quite quickly. However, this rapid movement in value works both ways. You can also suffer devastating losses in a short period of time. Because of this, it's critically important that you don't take too large of a trade in any particular issue; regardless of how confident you are in the trade's odds of being profitable. Don't fall into the trap of, "betting the ranch on a sure thing". You may have some of those trades go your way, but it's just a matter of time before one of them hurts you.
Position sizing is critical because no matter how correct or how thorough your analysis is; even the most experienced traders will inevitably end up in a bad stretch of losing trades. If you've regulated your trade sizes correctly, you will have enough money to trade though it until your bad streak ends.
We recommend that you never put more than 5% of your binary trading account into any one contract. If you start out funding your account with less than $600, you won't be able to abide by this rule, because the $30 trade minimum will be over 5% of your account. If you just don't have $600 to start out with, that's OK, but just remember that you are putting yourself at a higher risk of clearing out your account if you have a few losers in a short period of time.
Use Technical Analysis Appropriately
There are many varied techniques and theories behind charting. We have found that for most profitable traders, it's not the technique that used, but how it's used that determines the ultimate success or failure of the trader. If you have a charting game plan that has been tested for accuracy, it's important that you use it consistently, and don't second-guess the data. If you can't completely trust your technique in this way, you're better off finding a new strategy.
The next important point regarding your technical analysis is to use a time interval that is appropriate to the short-term nature of binaries. We generally recommend 3-minute charts for all trades that will expire that same day, and hourly charts for any contracts that expire at the end of the week. As always, back test for accuracy within your technique, but there's no reason for looking at a daily or weekly chart when trading binary options.
Author Resource:-
Charles Clark has been trading options for nearly 20 years and is now bringing his wealth of experience to the binary options market. To learn more about binary options, or to get started trading, visit: Binary Options Trading
