Learning Binary Options Trading is Like How To Drive
Recently I wrote an article about the steps you need to take to learn how to trade binary options. There are a number of things you need to do before you actually start trading with real money, if you are serious about making more of it. First, you have to find yourself a trading method, and then come up with a money management plan to go with it. Then you need to learn that system like the back of your hand and learn to recognize the best setups. Then you backtest the system, demo test—and only after that process is complete, you can start trading live with real money.
The other day I was talking to a fellow trader about the learning process, and he came up with a great metaphor for the process. Learning how to trade is like learning how to drive. That might sound trite, but it is not when you consider just how critical good trading habits are, and how much you have at stake when you trade. Money is serious business. When you climb behind the wheel of a vehicle, you are taking your life into your hands. When you start trading, you are taking your financial life into your hands. Here are five ways in which learning how to trade is like learning how to drive.
There is a huge difference between theory and practice.
Remember when you went to your first driver’s education classes in school? Those were classroom lectures. You learned about the parts of a car: the steering wheel, the clutch, the brakes, the gas tank, and how to operate the vehicle. You probably did not learn how an engine works, but the basic mechanical operation of the car was explained to you.
Would you go straight out of that classroom and into a car, and then jump in, start the ignition, and head out into a major highway? Unless you had a death wish, of course not. You would sit down in the car, and experiment with the controls without even turning on the ignition. Even when you did activate the ignition, you would only do so in a parking lot, and practice there until you felt ready to proceed.
Testing is like learning in a parking lot.
Just as you would practice in a controlled, stable environment before you headed out on the public roadways in your car, you should do the same when you learn binary options trading. Consider your “parking” lot to be your backtesting and demo testing. Once you have learned everything you can about the car without turning it on, you would then learn the basics of starting the car, turning it off, backing up, turning corners, and hitting the brakes in an empty lot. This is a low risk situation.
Testing binary options without going live is even better than a low risk situation. It is a no-risk situation. These binary options brokers let you demo test before going live.
Before you head out into real traffic, you try the “basic” routes.
When you learn a trading system that you can use for binary options, you will usually have a number of choices available to you regarding expiry times, assets, and even how you trade your setups. When you first start driving on public roads, did you head straight for a crowded highway during rush hour, or did you stick to quieter neighborhood roads?
What are the “quiet neighborhood” roads in our trading scenario? Well, for example, you could trade assets that behave in a reasonably “normal” fashion (in other words, avoid totally obscure currency pairs and other strange assets that do not conform to normal price movements). You could also stick with longer expiry times in the beginning and make your trades based off of higher timeframe charts which are more reliable and less volatile. You can choose to play setups in locations where they are most reliable and avoid locations where they might work, but which are harder to play correctly.
Driving requires adaptability.
For a beginner especially, driving can bring many unexpected hazards and require ongoing learning. After you get better at driving and have been on the roads for longer, you will probably be doing a lot less of that. But if you move to a new location or drive somewhere unfamiliar, you will still be making changes to how you interact with your environment. Unexpected events on the road also call for swift changes. You have to be able to deal with sudden obstacles, other cars slamming on their brakes, cars abruptly pulling out in front of you, and other hazards. If you are not fast on your feet, calm, and flexible, sooner or later you will get into an accident.
Trading likewise requires that you stay adaptable to changing circumstances. Just as the roads can change, presenting you with new challenges, the market conditions can change, transforming the trading environment and the way you interact with price. Just as you stick with your fundamentals in order to drive, you will stick with your trading method. But in the same way you have to be ready to make abrupt changes to deal with unexpected circumstances on the road in order to avoid disaster, you will need to do the same from time to time while trading.
If you have a near-miss on the road and you suspect that you made a mistake, what do you do? You don’t just go back to driving as if nothing happened. You do something about it. You figure out what you did wrong and you train yourself to never do it again. When you make a mistake trading that costs you money, you do the same thing. Go back to an environment which is more controlled, practice, make adjustments, and come back to trading with a safer, more reliable plan for success.
You are responsible for your passengers.
Maybe you drive by yourself, in which case you are only responsible for your own life (and that of other drivers around you). Maybe, likewise, you trade by yourself—but maybe you don’t. Do you have trading partners? If so, you are accountable to those people, even if you are not fully responsible for them or their actions (they are a bit like the other drivers on the road). What about family members who rely on you for a steady income? Those are like the passengers in your trading car. When you drive, you take their lives into your hands, and not just your own. You are responsible for their safety at all times.
Accountability is incredibly important with trading, and that is true even if you are trading for fun and not for a reliable revenue stream. You still are responsible for your family’s well being, and that means you need to stick to your money management plans and your limits, and keep any dependents you have informed about your trading decisions.
I think this car metaphor is a really powerful one because it illustrates clearly how critical your choices are when you trade binary options. Money is serious business, and nothing makes that more palpable than a comparison which most people can relate to personally. All of us remember the challenges of learning to drive when we were younger, and each of us has made mistakes on the road—some minor, some catastrophic.
Think how important a role your education and practice played in keeping you from making more serious mistakes, or repeating the mistakes you did make. That is the difference that learning and testing can make in your trading career. If you do not learn and test, you will crash your trading account. But if you do study and test, your trading vehicle may carry you far on the fast lane to riches.
Learn more about binary options before taking your “car to the highway”
Photo credits: Golf cart student driver? #catalina , Road Closed