The most important consideration is to be prepared. Never trade without a plan. This is rule number one. A trading plan can only be developed after learning, study and practice has taken place.
The aspiring trader should have a checklist prepared in advance of making his / her first trade. Here are some helpful questions that you should be asking yourself before placing a trade.
- Did I have a well-thought-out trading plan?
- Will this trade I am contemplating be in harmony with my trading plan?
- Have I made simulated trades like this already?
- Did they result in a profit after a significant number of trials?
- Have I predefined my potential loss on the trade I am contemplating?
- Am I willing to accept this loss?
- Am I aware that any given trade can be a loser?
Should also ask yourself if you have a signal source. If you aren’t a talented trader, you should be using a binary options software or signal service to help you with your trade opportunities.
Consideration of the following points may prove useful before embarking on any trading endeavor involving binary options: This type of trading is best suited to people that like taking and can afford exposure to risk. Always remember that the buyer of a binary option can lose the total amount at risk (minus the “out-of-the-money refund offered by some brokers).
If risk-taking is not in part of your nature, or if particular adverse circumstances have recently affecting you, consider taking a break from binary options trading. The market will be there when and if you are ready and prepared.
Run away from any binary options trading strategies that promise guaranteed profits. They don’t exist. Surprises happen even for the best trading systems and for the best traders. Avoid tips and gossip about the instruments you are thinking of trading. The Internet provides many sites offering tips on binary options. It can become very easy to get emotionally involved with these sources of opinion. It is always better to rely on your own, well-proven methods.
Always be aware that losses occur. These losses can occur in a matter of minutes and can cause adverse emotional responses in some traders.
Understanding Risk Reward
Remain aware of the balance between risk and reward. Yes, it is true that a bigger bet size can result in a bigger reward. But the opposite is also true: a bigger bet size can result in a bigger loss. Carefully plan out all trades. This includes but is not limited to the amount of capital at risk and the frequency of entering into trades.
Financial markets are bigger than any one individual. Surprises can and often do occur. These surprises can propel you to profit or contribute to losses, despite all the planning and knowledge any trader employs. Successful traders think long term. They realize that experience is something that is accumulated with time.