Handling Binary Options Wins and Losses
There are three ways to trade binary options. You can trade ruled by fear, excitement, or confidence. Confidence is not the same thing as overconfidence; that’s something that happens when you get too excited about a win, especially a win you got by sheer chance. While there are traders who do a lot of research and testing before they get started with binary options, the vast majority of traders jump in the moment they hear that trading binary options is as easy as 1-2-3.
At that point, regardless of why you are trading, one of two things will happen to you. Either you will 1-blow your account within short order, or 2-you will get lucky for a while and do pretty well. It’s not uncommon to get winning streaks, even when you’re gambling on total chance. Sometimes those winning streaks happen in the beginning. You might start to feel like you have a pretty strong handle on what you are doing, and start taking bigger and bigger risks. They may pay off for a while, but eventually one of those big risks is going to translate into a huge loss. And then you may find yourself in a losing streak, one that ends quickly, because you are over-invested in your trades and are trading without a system or money management rules. What’s a trading system? Find out here.
So learning how to deal with wins and losses is equally important. This is true whether you are new to trading or you are a veteran, whether you are gambling or using a system to try to reduce your risk exposure. There are two kinds of wins and two kinds of losses: those that happen within the constraints of trading methodology rules and those which fall outside of those rules and are governed by pure luck. Here are my suggestions for handling all four.
Losing by Chance
If you find yourself in a losing streak by pure chance, or with a major loss because your luck turned against you, and you are not trading with a system, well, now is the time to realize that you can reduce your losses! The way to do that though is not to throw a lot more money into your next trade in a desperate Hail Mary, praying that you will “win it all back.” And you actually should be losing some confidence in yourself, because chances are until this point you were trading with overconfidence and making poor decisions.
This is the perfect time to back away and take a break from the market. Stop trading live for a while, and start learning about trading methods, money management rules, and trading psychology (reading this article is a great start on the latter). Come up with a trading method, or borrow one from online, that will help you to make smart decisions that will reduce your risk exposure.
Using a trading method means trading conservatively in most cases, but ultimately it will lead to less of those losses that happen by pure chance. And you will develop real confidence, which is very different from overconfidence. It stems from the knowledge you have built up and the experience you have gained learning and testing. It has a basis in reality. Even if you do not want to learn how to trade “seriously,” and you still want to gamble, learning money management rules can help you to conserve your bankroll and stay in the game for longer. You will also learn how to balance your gambling with the rest of your finances and your life.
https://www.bestfxbrokers.com/binary-trading/guide/bankroll-management/ gives you the insight you need for money management
Winning by Chance
Let’s say that you have been losing trade after trade gambling binary options without a system, and you decide to wager it all on that desperate Hail Mary. Miraculously, you win the trade. At this point, many traders would consider this to be excellent luck, and feel like maybe their luck is “turning around.” You might be tempted to try to take advantage of this imagined turn, and start making more big investments. After all, your risk was rewarded, right? That will tempt you to repeat the behavior.
The reality is that the wins that happen by chance will always eventually turn into losses that happen the same way. What goes up will come down. A win by chance should be no more welcome than a loss by chance if you are serious about trading. And even if you are gambling, you should find a way to think about the win in a levelheaded way so you are not tempted to gamble irresponsibly.
How should you approach one of these miraculous wins? First, acknowledge that the win was completely by chance alone, and that you had nothing to do with it. In fact, if you violated trading rules or money management principles to get the miraculous win, you should log it as a personal loss, because you failed, even if the trade succeeded.
As with times you lose by pure chance, when you win by pure chance, you should also be taking a break from the market. While there is a monetary difference between a win or loss in your trade account, there is little difference between them when it comes down to what they mean for your trading if they happened by luck. Both mean that you weren’t following trade rules, and both are equally dangerous in that they can induce more negative trading behavior.
Winning by a System
If you are following systematic trading rules and trading with confidence and discipline and you win a trade, that’s great. That’s a genuine win. You not only won money, but you also won the day by following your rules and trading right. Wins of these types should reinforce your confidence. You may still feel an urge toward becoming overconfident when you win by following your trade rules. If this is the case, you will need to work extra hard on maintaining your self-discipline so that you don’t start taking trades which are not “A”-quality trades. For tips on developing discipline, click here.
Losing by a System
If you lose a trade while you are following your system rules, you should try to figure out why you lost. Sometimes the answer may be obvious, and other times it may be difficult to discern. A certain number of lost trades is going to ultimately be unavoidable. There is such a thing as a loss which you can’t get around, and why you never could have predicted or avoided it. If the amount of trades you are losing falls within what you would expect according to your win/loss ratio from backtesting, then you probably should not be too concerned. It is easy to get gun shy about trading when you start losing trades, but there is no reason to dent your confidence when you are following good trade rules.
https://www.bestfxbrokers.com/binary-trading/trading-school/beginner/how-to-back-test-binary-option-trades/ will show you how to backtest
If you are losing an abnormal amount of trades and you can’t figure out why and you are following your system rules, it is time to pull back and stop trading for a while. Upon closer examination, you might figure out some way you have been violating trade rules, or maybe not paying close enough attention to context. Or perhaps the market conditions have changed, and your system requires some adjustments.
Any time you can figure out why you have lost a trade, even if it is an isolated incident and not unexpected, you should consider making adjustments to your trading to prevent future losses of the same type. In some situations this is very simple, and may not require any testing. In other cases, the adjustment may be more major, and it may require you go back to backtesting and demo testing and take a break from the market for a little bit while you work on making improvements.
So as you can see, there are different psychological responses which wins and losses call for, depending on the circumstances of the won or lost trades. In all scenarios, though, you ultimately should be striving to build up discipline and to trade according to logical, proven rules. In situations where you are doing this effectively and still experiencing losses, you work on improving those rules. This bolsters your confidence along with your trading strategy, leading to more effective trading. What you should never do is rely on chance or throw all your luck into a Hail Mary trade which violates trading and money management rules. Miraculous wins lead to failure just as surely as lost trades, even if they take a little longer to get there.