Many traders lose their account even after months of practice on a demo account. Merely concentrating on the entry and exit will not enable a trader to succeed in binary options trading. The trading plan should also take into account several other factors, as discussed below, to ensure success in real account trading.
Option Alpha
- Trading time:
The choice of trading time depends on the experience and trading skills. A seasoned trader would be looking for an opportunity to trade during periods of heightened volatility. However, a beginner would be interested to trade in a range bound market. In the same manner, there are traders who trade only during the US trading session. On the other hand, there are also traders who place orders only after the announcement of an economic data. Thus, it can be understood that a trader should select the trading time based on his experience and skills. Choosing a trading time against the personal strength would only result in a loss, irrespective of how good the strategy is.
- Traded assets:
In the initial stage of a binary trader’s career, it is better to concentrate on four or five assets. Trading a large number of assets will only decrease the performance. The price movement of assets in the equity, currency, and commodity markets is closely related to each other. However, the major driving force behind every tradable asset is unique. Only an in-depth study coupled with experience will enable a trader to understand and precisely gauge the trend of an asset. Thus, it is always better to trade four or five assets regularly. As a trader gains experience, more assets can be added to the list.
- Expiry time:
Even the most successful traders will start losing when they shift to a different time frame. Thus, while practicing on a demo account, a trader should validate his performance in different time frames. The test should be conducted for at least one month before choosing a trading time frame which has resulted in a consistent performance. If at all there is any need to change the trading time frame, a trader should first try the strategy in a demo account for at least 3-4 weeks before implementing it on a real account.
- Entry and exit rules:
In the case of binary options, technical analysis should be given more priority while creating the strategy. The reason is that an asset may be fundamentally strong, but may be technically weak in the short term. Thus, buying a call option in such cases would lead to losses. Trading decisions based on fundamental analysis should be taken only when there is a news announcement. The rest of the time, a trader should identify the entry and exit purely based on the technical aspects of the asset. By giving importance to the technical analysis, a trader will be able to identify the trend reversal perfectly. This would enable a trader to make a pre-mature exit, if required, as long as the broker offers such a facility.
- Strategy assessment:
Any trading strategy created by a binary trader should be put to test in a demo account for a considerable period (at least one month) of time. Only then a proper assessment of the trading strategy can be done. If the strategy has a success rate of at least 75%, then the trader can shift to a real account. If the success rate is less than 75%, then the strategy should be fine tuned again.
