5 Costly Mistakes Beginning Binary Traders Make
When you’re brand new to the exciting world of binary options, it can be tough not to jump in headfirst. After all, you have the potential to make a lot of money fast. And maybe you think you already have a handle on what’s going on in the financial world. But the truth is that most binary options traders lose. The majority will blow through their bankrolls in a matter of days or weeks, and will soon find themselves sitting on the sidelines wondering what happened to their money. If you want to stay in the game, you have to play it right from the start.
Here are 5 of the costliest mistakes which you can make as a beginning trader in the binary options world:
- Forgetting to demo test.
- Choosing a bad broker.
- Using trade signals.
- Assuming you’re a market expert.
- Bad money management.
1. Forgetting to Demo Test
This error is particularly common among new binary options traders because so few brokers have things set up so that you can demo test at all. Even brokers who say they offer this feature typically only offer demo testing in a limited capacity. For example, they might say that you will get several free trades, but that will be all. The more free trades a site will give you, the better. If you can demo test indefinitely, that’s the best yet. Banc De Binary currently offers one of the best programs for demo testing that we’ve encountered.
Why is this such a big mistake if you decide not to do it? Let us say that you actually have taken the time to backtest first. You have a method that you’ve tested and which you know works well on data from past months or years. The results you have on your tests are consistent and profitable. What would the harm be in jumping right in and using that method? You are on the right track since you have a method and you aren’t planning to trade randomly, but you may still lose money unnecessarily if you have not tested live first.
There are a lot of factors which come into live trading which you do not encounter in the backtesting stage. These factors include your emotions, which may respond differently in real time, scheduling issues (perhaps the trades which worked well in backtesting would be difficult or impossible to place in real time due to being at work, asleep, or so on), and other inconveniences you may not be aware of. Demo testing will help you to recognize those issues and deal with them before they cost you money.
Before you even start demo testing, you need to backtest your method on historical data. Check out our article on how to backtest your binary options system to get started!
2. Choosing a Bad Broker
Not all binary options brokers are created equal. In fact, a lot of binary options brokers are created simply to take your money. Until recently, binary options trading was not widely available to average people like you and me. Now that it is available to a wider market of customers, binary options brokers are popping up online left and right, and the vast majority of them are unregulated and have little or no reputation. To further confound matters, most of these brokers seem nearly interchangeable on site—and a fair few of them are owned by the same few companies. So researching them can be difficult. You’ll find almost no information on some of them. Many of them will not even respond to your emails, and if you get on the phone with them, they will try to hard sell you on depositing into an account.
Instead of trying to wade through the morass of untrustworthy brokers, we suggest you simply look into the better ones with good reputations. One of the best ways to get started is simply to check our broker list. Here you’ll find the cream of the crop, and our insights on each of them from doing in-depth research. We will tell you about their terms of service, bonuses, whether or not they offer demo accounts or mobile trading, about any fees and commissions, the trading resources they provide, customer service, and more.
One step we recommend you take before you settle on any prospective broker is to contact their customer service team directly. See how long it takes them to answer emails. Check whether they staff their live chat desks. Find out how they treat you on the phone. If you don’t get great service, try another broker.
3. Using Trade Signals
There is nothing “wrong” with trade signals in theory. And many trade signals which are out there are actually useful, and may even help you profit with your trading. As with brokers, however, they are not the majority. Most trade signal services will cost you more money than they will make you. Then there is the fact that even a good service will not by itself make you profitable. You still have to use it correctly in conjunction with your trading and money management.
Mostly, though, we just think it is essential that you get as involved as possible with your own trading at this stage in the game. Laziness is not a route to success. Hard work and discipline are needed to become a professional binary options trader. You cannot rely on someone else to substitute in their hard work for yours. Even if you use a good trade signal service and apply it properly, eventually that service may degrade as market conditions change. If you were not involved with your trading and do not know why the signals worked, how would you expect to move forward and become profitable again?
4. Assuming You’re a Market Expert
Binary options trading holds some real appeal for people who believe they know what’s going on in the world. Pride is not a good ingredient for trading, however, and will lead to your downfall, probably sooner rather than later. Maybe you really are an expert. Perhaps you went to school and studied economics, and you keep up to date on everything that goes on. Even people who qualify as real experts often miss the details, however, and you still might not be profitable trading. So if you come at this with only a “feeling” or a “certainty” that the price of an asset is going to rise or fall, why would you think that you would be profitable? You need to do a lot of research before trading fundamentals. Technical analysis or price action will be more accessible to most traders, but these require a ton of work to apply correctly as well.
5. Bad Money Management
The best trading method on earth will be unprofitable if you lack proper money management principles or fail to apply them. $250 is a typical deposit minimum to open a binary options account. But $20 is a typical minimum trade size. Should you really be trading almost 10% of your account on each trade? You might think that isn’t a lot, but it is, and you can wipe an account out faster than you can imagine if you don’t trade smaller amounts. We recommend no more than 2.5-5% on each trade. You must never violate your money management rules for any reason, even if you think you have just found the most amazing trade set up in history.
Just avoiding making these five common, simple mistakes will make it much more likely that you will go on to become a profitable binary options trader. Spend some time reading the other articles on our site. The more time and effort you are willing to invest in your trading and in yourself, the better your trading results will likely be!