Rules to Trade Binary Options Consistently and Profitably
If you want to trade consistently and profitably at binary options, then you’re going to need to choose to do things differently than other traders. The vast majority of binary options traders will lose money overall and never become profitable in their trading, but that is because they are not going to use consistency in their trading methods. If you don’t apply consistency, how can you expect consistent profitability as a result?
The cards are stacked against you in binary options trading. If you don’t take the extra steps to become profitable the odds are you are going to lose money.
We’ve put together some helpful binary trading rules to get you started on the path to greater consistency.
Rule 1: If you want to profit consistently, you need to come up with rules that you understand.
Rules are what separates your trading method from trading methods which lack consistency. They give you something concrete that you can stick to when things get confusing, which often happens while you’re trading. There are many types of trade rules that you’ll need to incorporate into your trading method: entry and exit rules, money management rules, rules of discipline.
It’s not enough to just have rules, either; you need to learn to understand how and why they work. This will help you out the day they stop working the way you think they should. All trading methods fail sooner or later, but not necessarily permanently. When that day comes, your temptation is going to be to go back to the drawing board and start all over, but more often the best choice is to stick with your trading method but make adjustments. If you understand why your trade rules worked when they did, you may have a better chance at understanding why they’ve stopped working in the time since. This can help you to make the proper adjustments more quickly and get back on the path to profit.
Rule 2: You need to actually follow the rules you come up with.
Consistency isn’t just about having a great plan, it’s also about follow-through, which for most of us is a lot harder than coming up with the initial plan. Planning takes hard work, but application takes consistent hard work over a long time period. It involves dealing with discouragement, frustration, anger, boredom, and loss in a levelheaded way. You can’t completely divest all emotions when you’re trading; you’re only human. But you will have to learn how to deal constructively with those emotions and mitigate the effect they have on your trading. Negative and positive emotions both can mess with your trading plan if you let them. You’ll need to develop the discipline to apply your rules every time and without exception. That doesn’t mean you can’t use your discretion when you apply them, but that discretion, like everything else, needs some basis in concrete theory and testing. It can never be random.
Rule 3: You need to accept the changing nature of the market.
Trading well is all about removing as much randomness from your trading as you can by removing randomness from yourself and your actions. While doing this can reduce your risk and make it far more likely that you’ll be successful with your trades, one thing you can never do is have the pride or ignorance of assuming you’ve discovered the perfect, infallible system. All systems have flaws, and many are exposed only with time and change. There are many patterns in market movements, but over time there are shifts that gradually may erode at your profits. You can liken this to climate change. It’s relatively easy to predict the weather in a given area once you’ve learned the weather patterns, but it’s much harder to get a clear vision of long-term climate change and how it can impact life in the future.
Market climate change can break a good trading method. If the market changes and you don’t, you’ll find a once profitable trading method no longer works, no matter how consistent you are. This is the point at which you have to adapt your trading method to the new market conditions. Understanding why your method worked will help you do this. No trader gets out of having to do this. Once you do adapt to the new market conditions and your method works once again, you again must follow your new, adjusted rules with discipline in order to succeed at binary options trading.
5 Binary Options Rules Not To Break
If you’re getting into binary options trading, you probably have heard that you should find ways to be consistent in your trading. Trading with discipline helps you to filter through the randomness of the market to find consistently profitable trading opportunities—and to come out of those opportunities ahead. You may also have heard though that there’s nothing wrong with trading with your discretion. Discretionary trading is contrasted with mechanical trading, where rules are followed exactly without deviation. If you’re thinking of discretionary trading, you may wonder which rules you can bend, which you can break, and which you should never violate. What are five rules that binary options traders should never break?
- The amount of money you risk on each trade, as a percentage of your trading bankroll. You should never trade 2.5% of your account and then suddenly think, “That’s a great looking setup. Just this once, I’m going to invest 10%.” Start breaking this rule and you won’t stop. Next it’ll be, “I lost 10% on my last trade, but this one can really turn it around, but only if I invest 10% again. Or let’s make it 15%.” See how quickly this can blow your account? Always risk the same percentage. As your account grows, the dollar amount will grow with it, but the percentage must stay the same. Feel free to use rollover or double up if a trade is going your way, but only if you’ve figured out a consistent approach to using it which results reliably in profit every time.
- Account exposure. Just as there should be a maximum amount you’re willing to risk on each trade, there should be a cap on the total amount you’re willing to risk at once. This is referred to as your “exposure” across all your trades. So you might have a rule like, “I’ll only ever invest 2.5% of my account per trade, and only enter up to 3 trades at a time.”
- Entry and exit rules. You don’t have to take every setup you see, but you do need consistent entry rules and a thorough understanding of context for your setups. You can’t start doing this: “I don’t have much of a setup here, but I am so sure that the price of oil is going to rise, so I’ll enter.” You also can’t start doing this: “My exit rules tell me a trade no longer exists and I should get out, but I really want to with my money back so I’m going to stay in instead of using early closure.” This sort of thing will lose you money.
- Testing requirements. You should never go live with a new trading method or an adjustment to a method without testing it first. Optimally, this should include backtesting on historical data and demo testing with virtual money. If your method needs adjusting and isn’t profiting anymore, don’t start making arbitrary changes and testing them with real currency. Instead, make the adjustments on paper and test the changes to see if they will improve your performance before you risk real money on them.
- Honesty. The number one rule you should never break is your honesty to yourself. The moment you compromise on that, you have no hope of following the other very important rules listed here.
How do you account for these unbreakable rules in a discretionary trading setup? Think about your trading as including different “rule profiles” for different possible situations. Your trade amounts and account exposure should never differ, but you might have different sets of entry and exit rules based on different possibilities. So a rule that would apply in one trading context might not apply in another—but the context-based rule governing both provides you with consistency. The last two rules should also never be broken. Good luck with your trading, and try to trade with a broker which provides you with demo testing capabilities!