Binary options trading focuses mostly on the short term, but if you want to be a good trader, you need to be able to look at the long term. From a risk management perspective, this is just smart. Think about it this way: you have 1,000 trades that you make, and if you are a great, top level trader, you will be right about 65 percent of the time. That means you will be correct on 650 of those 1,000 trades, and wrong on 350. This makes sense, that’s just the math. But you have no way of telling which 350 trades will be wrong. There’s a decent chance that many of them will come back to back. It’s not uncommon to execute 10 or more trades that are incorrect in a row. If you don’t have the proper setup in place with your trades, 10 wrong trades in a row can wipe out your account. With a long term point of view, you can avoid this.
You also need to think of ways to maximize your cash. For example, when you have a better chance of being correct in your prediction, you can sometimes afford to risk a little bit more. And when the odds tilt against you, then you decrease your risk amount, or just forego trading altogether. This ensures that you are putting your money to its very best use, giving you a higher profit rate and helping you to better focus your time and energy.
The statistical term for this is called variance. You know a basic framework for how often you will be right, but you don’t know when it’s going to occur. The longer the term you focus on, the more predictable your trading can become. You will still have big ups and downs in your account as binary options are pretty high variance in nature. But when you have the right cash cushion and the risk management strategies in place, the short term movement takes on a long term upward trend. You will see losing weeks. You will see losing months. But your goal is to make money long term, not just once or twice and then lose the rest.
To overcome variance, you want to do some things to protect yourself. First of all, have enough money in your account, and ensure that you are emotionally separated from it. If you have $100 in your account and you are counting on that money to make your mortgage payment next month, you are going to trade differently than if you have $500 in your account that you are okay with losing. Variance is only overcome in the long term. A day isn’t enough time to beat it, nor is a month. You should be looking at at least a few months off in the future with your binary options trading, even though the bulk of your trades will come in at 15 minutes or less. When you take this approach, your money becomes less a speculation, and more of an investment. Think of it as a hyperactively managed portfolio fund, with you as the sole decision maker. You put the money in, make your trades, and then reevaluate it in a few months. If you take this long term approach, the short term ups and downs are more manageable and they make more sense. Do you look at your 401(k) every day? It changes every day, but that’s not why you have it. It’s there for long term profits. Adopt the same mentality with your binary options trading account, and the results become less emotional, and more strategic. This is where you can show off your skills as a trader.