Just as with all instruments, when trading binary options, you need to find an edge in the market and create a system around it. However, unlike many instruments, binary options allow for many different types of trades. As you know, you can use binary options to speculate on ranges, breakouts, economic events, and all other kinds of trades.
Finding an edge is certainly not easy to do. To make things even more interesting, finding an edge is not the Holy Grail; another key component is risk management and online trading psychology. These components are so intertwined that neither one can be mentioned without the other. And both of these components can be your worst enemy if they are not properly used. Having said that, if properly used, they can also be your best friend.
It has been hypothesized that, with proper risk management, a simple system like flipping a coin to buy or sell could be successful. However, having even the slightest edge should enhance your chances a great deal. An edge is something that will make you more money than you lose over a big enough sample size of trades.
You can take advantage of your edge by trading it manually, or you can create an algorithmic system to trade your edge. What’s most important is that you make money in the long run.
A perfect example of this is the game of blackjack. The house has a very slight edge, less than 2 percent. But by repetitive play, they consistently end up profitable. This is because they have a set approach, an edge, and they don’t get emotional when a player goes on a winning streak. Good traders put themselves in the position of a casino.
To begin, one needs to calculate a system’s expectancy, develop trading and risk management rules, and follow those rules religiously to generate profits. Because most systems have life cycles, it is very important with any system to create a reevaluation point. This is a point where the trader starts to question the system’s effectiveness and begins to look for other systems that he expects to be profitable.
The reevaluation point should be decided upon before trading begins. It should be based on the back-tested data, and take into account concepts that will be discussed such as a drawdown, consecutive losing sessions, and reward/risk ratio. The next sections will cover these concepts in greater detail. The key is to develop and utilize a system that fits your trading style and personality.
>> This proven trading system and ongoing mentoring will quickly transform you into a profitable trader by up to 326%!