Contents:Every experienced trader knows that before starting the trading career in binary options, investors should develop an individual trading strategy. Answers for several vital questions would help. What is the overall target for trading? How much money does a trader want to make every week or month? What is an affordable amount to risk with? Depending on those factors, a binary options money management set of rules is created in order to achieve the goals.
Why using money management in trading?
When it comes to beginners, the main goal is to avoid losses and to keep the investment capital safe as most of the newbies start with wiping initial investments out, according to official statistics. Therefore, the set of rules for binary options money management must influence the trading algorithm and secure a trader from wasting too much money in one single deal. Mistakes are part of the business in trading, and the only difference is how traders manage them.
How to avoid large losses in binary options?
A beginner might find a potentially lucrative deal when chances seem to be too high to miss such an opportunity. This trader might think ‘that’s a chance to double-up my account with one single shot’. As a result, he opens a trading position with a too large amount. However, the binary options type of trading suggests that even one pip in the wrong direction kills the deal. How does an experienced trader manage such a case? The answer is simple, he’s always ready that things might go wrong, and he never puts all eggs into one basket. The most simple way to limit potential losses is to open deals with the same volume, limiting it to a certain percentage from the account balance.
What is a Percent Rule in binary options?
Any trading algorithm or strategy should consist of a set of rules. The technical analysis allows traders developing certain conditions when it’s the best time to open deals or stop the trading cycle. A Percent Rule says that binary options traders should never open deals for more than 1-5% from the overall account balance. The lowest band of the range is usually considered as a conservative approach while opening deals for 5% from the investment capital is an aggressive one. Traders should decide what is the best risk appetite according to their individual financial goals, choose the best percentage for every single deal, and follow the rules strictly.
That could help traders not only avoid possible large losses, but also increase profits in case if the trading strategy shows efficient performance. For example, if a trader is in good shape and his predictions work well, then the trading account grows as the result. Therefore, after achieving a certain goal for profit, the trading volume for every single deal could be increased as keeping the same percentage with a larger account balance would enlarge the volume.
Three tips to develop own percent rule in binary options
As long as trading binary options is an emotional process, most of the traders lose because they don’t know how to manage those emotions. Some of them might not get enough profits despite strong trading signals and favourable conditions as they are not confident enough to open deals for a certain trade size. Others could lose too much as they afford too much binary options risk for trading positions because of too high confidence. The same amount for every deal leaves those issues apart, allowing traders to focus on what’s really important - technical analysis, signals and how to trade them.
The percentage relation allows traders to minimize losses in case if the trading strategy does not work, or a losing streak happens. If the overall account balance declines, that’s a strong signal to consider changes in the trading strategy. Lowering the trade size gives an opportunity to win time, adapting the trading algorithm. At the same time, if things go well, it’s worth increasing the deal amount as the capital grows.
Confidence is a key feature of profitable trading. Most of the beginners lose because of the lack of confidence. The percentage rule allows traders to boost that skill as growing step-by-step allows them to stay in the market for a much longer period than if large losses occur.
Money Management Calculator
After choosing the most affordable percentage for the trade size, according to the risk appetite, it’s very easy to calculate the deal amount and account balance, as well as adjust them in the trading process. For instance, if 5% was chosen, and the initial investment is $1000, then the deal size should be $50. After that, traders should set a certain goal, or a threshold, achieving which they are ready to boost the deal volume. For example, once the trading account grows to $1500, then the deal volume could be increased to $75. Minimum trade size of the broker might impact the figures, thus, it has to be adjusted in money management calculator.